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Testing market efficiency on the Johannesburg Stock Exchange using the overlapping serial test

Author

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  • Michael A. Noakes

    (University of Cape Town)

  • Kanshukan Rajaratnam

    (University of Cape Town
    University of Cape Town)

Abstract

It has been suggested that stock exchanges may be tested for market efficiency by using tests for assessing random number generators. This paper uses such a test to assess the efficiency of small, mid and large cap indices on the Johannesburg Stock Exchange, while making adjustments for thin trading which occurs during the sample period. The efficiency of these indices is examined using individual share level data as well as index level data over a stable period and a period containing the 2008 financial crisis. This study finds evidence suggesting that small cap stocks exhibit a high degree of non-randomness in price movements. Some inefficiencies also appear to be present in mid and large cap stocks, however to a much lesser extent, with large cap stocks exhibiting higher levels of efficiency. Many of the stocks investigated appear to exhibit lower levels of efficiency during the crisis period. This may be a result of increased irrationality during periods of uncertainty.

Suggested Citation

  • Michael A. Noakes & Kanshukan Rajaratnam, 2016. "Testing market efficiency on the Johannesburg Stock Exchange using the overlapping serial test," Annals of Operations Research, Springer, vol. 243(1), pages 273-300, August.
    • Handle: RePEc:spr:annopr:v:243:y:2016:i:1:d:10.1007_s10479-014-1751-y
    DOI: 10.1007/s10479-014-1751-y
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    2. Erdinc Akyildirim & Ahmet Goncu & Ahmet Sensoy, 2021. "Prediction of cryptocurrency returns using machine learning," Annals of Operations Research, Springer, vol. 297(1), pages 3-36, February.
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    4. Ben Moews, 2023. "On random number generators and practical market efficiency," Papers 2305.17419, arXiv.org, revised Jul 2023.
    5. Idode Patrick & Sanusi Gbenga, 2019. "Financial Globalisation and Economic Transformation in Africa: Evidence from Nigeria," Financial Sciences. Nauki o Finansach, Sciendo, vol. 24(1), pages 7-24, March.

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