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Testing for Market Efficiency in Emerging Markets: A Case Study of the Karachi Stock Market

Author

Listed:
  • Khalid Mustafa

    (Department of Economics, University of Karachi, Pakistan.)

  • Mohammed Nishat

    (Professor and Chairman, Finance and Economics, Institute of Business Administration, Karachi, Pakistan.)

Abstract

This paper investigates the efficiency of the Karachi stock exchange (KSE) with corrections for thin trading and non-linearity as suggested by Miller, Muthuswamy and Whaley (1994). Daily, weekly, and monthly data on stock prices from December 1991 to May 2003 have been used, with three non-overlapping periods (December 1991 to May 1998; May 1998 to September 2001; and September 2001 to May 2003) and one combined period (May 1998 to May 2003). The results indicate that the Karachi Stock Market is efficient for the overall period, the three sub-periods, and the combined period in linear and non-linear behavior after making adjustments for thin trading. The same result is observed when the efficiency test is conducted on weekly and monthly data after adjusting for thin trading during the overall study period.

Suggested Citation

  • Khalid Mustafa & Mohammed Nishat, 2007. "Testing for Market Efficiency in Emerging Markets: A Case Study of the Karachi Stock Market," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 12(1), pages 119-140, Jan-Jun.
    • Handle: RePEc:lje:journl:v:12:y:2007:i:1:p:119-140
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    References listed on IDEAS

    as
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    Cited by:

    1. Musarrat SHAMSHIR & Mirza Jawwad BAIG & Khalid MUSTAFA, 2018. "Evidence of random walk in Pakistan stock exchange: An emerging stock market study," Journal of Economics Library, KSP Journals, vol. 5(1), pages 103-117, March.
    2. Shaikh, Slam Ahmed, 2016. "Analysis & Test of Market Efficiency: A Case Study of KSE," MPRA Paper 68743, University Library of Munich, Germany.
    3. Naimat U Khan & Sajjad Khan, 2016. "Weak Form of Efficient Market Hypothesis: Evidence from Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 8(SE), pages 1-18, March.
    4. 子, 鬼谷, 2022. "Humanoid psychological sentiments and enigma of investment," OSF Preprints rm9gu, Center for Open Science.
    5. Halari, Anwar & Tantisantiwong, Nongnuch & Power, David. M. & Helliar, Christine, 2015. "Islamic calendar anomalies: Evidence from Pakistani firm-level data," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 64-73.

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