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Efficiency in a Thinly Traded Market: The Case of Pakistan

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  • Husain, Fazal
  • Forbes, Kevin

Abstract

This paper tests the weak form efficiency hypothesis in the Pakistani equity market. Using daily closing prices of 36 stocks, 8 sector indices, and the market index from January 1, 1989 to December 30, 1993 and applying Serial correlation and Runs analysis, the paper does not find the market to be efficient. The market exhibits strong serial dependence and the factors responsible appear to be infrequent trading and stock returns volatility. The intertemporal behavior of serial dependence suggests that the serial dependence increased significantly when the market was opened to international investors but started to decrease after a year. The analysis indicates that the Pakistani market adjusts slowly to new information. This points to the weaknesses of the market regarding the dissemination of pertinent information to potential investors, suggesting that effective measures should be taken in this regard.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5355.

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Date of creation: 1999
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Publication status: Published in Savings and Development 4.23(1999): pp. 457-473
Handle: RePEc:pra:mprapa:5355

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Related research

Keywords: Efficiency; Pakistan; Thin Trade; Serial Dependence; Runs Analysis;

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References

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  1. Errunza, Vihang R. & Losq, Etienne, 1985. "The behavior of stock prices on LDC markets," Journal of Banking & Finance, Elsevier, vol. 9(4), pages 561-575, December.
  2. Dryden, Myles M, 1970. "A Statistical Study of U.K. Share Prices," Scottish Journal of Political Economy, Scottish Economic Society, vol. 17(3), pages 369-89, November.
  3. Errunza, Vihang, et al, 1994. "Conditional Heteroskedasticity and Global Stock Return Distributions," The Financial Review, Eastern Finance Association, vol. 29(3), pages 293-317, August.
  4. Conrad, Klaus & Juttner, D Johannes, 1973. "Recent Behaviour of Stock Market Prices in Germany and the Random Walk Hypothesis," Kyklos, Wiley Blackwell, vol. 26(3), pages 576-99.
  5. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December.
  6. repec:fth:calaec:13-89 is not listed on IDEAS
  7. Errunza, Vihang R., 1979. "Efficiency and the programs to develop capital markets : The Brazilian experience," Journal of Banking & Finance, Elsevier, vol. 3(4), pages 355-382, December.
  8. Solnik, Bruno H, 1973. "Note on the Validity of the Random Walk for European Stock Prices," Journal of Finance, American Finance Association, vol. 28(5), pages 1151-59, December.
  9. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
  10. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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Cited by:
  1. Husain, Fazal & UPPAL, Jamshed, 1999. "Stock Returns Volatility in an Emerging Market: The Pakistani Evidence," MPRA Paper 5270, University Library of Munich, Germany.

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