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Predictability Of Returns: A Case Study Of Karachi Stock Exchange, Pakistan

Author

Listed:
  • Adnan Javed

    (Institute of Management Sciences, Peshawar)

  • Muhammad Rafiq

    (Institute of Management Sciences, Peshawar)

  • Uzma Atta

    (Institute of Management Sciences, Peshawar)

  • Muhammad Atiq

    (Institute of Management Sciences, Peshawar)

Abstract

The study has been designed to investigate the information efficiency in the Karachi stock market. This is examined using stock market indices from July 1997 – July 2007. Weekly stock indices are used for evaluation of KSE. The daily stock indices are not used because of several biases such as bid ask spread, non-trading etc. The Efficient Market Hypothesis (EMH) was tested using a GARCH model. It is concluded that Karachi Stock Exchange is information inefficient and the predictability of returns and risk is possible. These tests indicate non-randomness in the behavior of Karachi Stock Exchange indices and hence cast a shadow on the efficiency at the KSE. These are the powerful test and hence their results can be relied upon. The study recommends that SECP step up its regularity measures in the general interest of the public

Suggested Citation

  • Adnan Javed & Muhammad Rafiq & Uzma Atta & Muhammad Atiq, 2009. "Predictability Of Returns: A Case Study Of Karachi Stock Exchange, Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 1(1), pages 25-28, April.
    • Handle: RePEc:bec:imsber:v:1:y:2009:i:1:p:25-28
    DOI: .
    as

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    References listed on IDEAS

    as
    1. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    2. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    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. Darrat, Ali F & Zhong, Maosen, 2000. "On Testing the Random-Walk Hypothesis: A Model-Comparison Approach," The Financial Review, Eastern Finance Association, vol. 35(3), pages 105-124, August.
    5. Fama, Eugene F, 1991. "Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Information efficiency; stock market; predictability; returns;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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