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Efficiency in a Thinly Traded Market: The Case of Pakistan

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Author Info
Husain, Fazal
Forbes, Kevin

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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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File URL: http://mpra.ub.uni-muenchen.de/5355/
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Publisher 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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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. LeRoy, Stephen F, 1989. "Efficient Capital Markets and Martingales," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1583-1621, December. [Downloadable!] (restricted)
  4. 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.
  5. Leroy, S.F., 1989. "Efficient Capital Markets And Martingales," University of California at Santa Barbara, Economics Working Paper Series 13-89, Department of Economics, UC Santa Barbara.
  6. 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.
  7. 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. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Husain, Fazal & UPPAL, Jamshed, 1999. "Stock Returns Volatility in an Emerging Market: The Pakistani Evidence," MPRA Paper 5270, University Library of Munich, Germany. [Downloadable!]
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