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Market Returns and Weak-Form Efficiency: the case of the Ghana Stock Exchange

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  • Frimpong, Joseph Magnus
  • Oteng-Abayie, Eric Fosu

Abstract

This paper examines the weak-form efficient market hypothesis (EMH) in the case of the Ghana Stock Exchange (GSE) an emerging market. Daily returns from the Databank Stock Index (DSI) over a 5-year period 1999-2004 were used for the exercise. Random walk (RW) and GARCH(1,1) models are used as the basis for our analysis. The GSE DSI returns series exhibit volatility clustering, an indication of inefficiency on the GSE. The weak-form efficient market (random walk) hypothesis was rejected for the GSE, meaning that the market is inefficient. The inefficient market has important implications for investors, both domestic and international. Knowledge of profitable arbitrage opportunities due to market predictability serves to attract investors to diversify from more efficient markets to invest on the GSE bourse to increase their returns.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7582.

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Date of creation: 08 Aug 2007
Date of revision: 09 Mar 2008
Handle: RePEc:pra:mprapa:7582

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Keywords: Ghana Stock Exchange; FINSAP; efficient market hypothesis; nonlinearity test;

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  1. Chris Brooks & Simon Burke, 2003. "Information criteria for GARCH model selection," The European Journal of Finance, Taylor & Francis Journals, vol. 9(6), pages 557-580.
  2. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
  3. 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.
  4. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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