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Testing The Weak-Form Efficiency Of The Romanian Capital Market By Assessing The Random Walk-Like Behaviour Of Stock Prices

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  • PASCA LUCIAN

    (FACULTY OF ECONOMICS AND BUSINESS ADMINISTRATION TIMISOARA)

Abstract

This paper attempts to test the efficiency of the Romanian Capital Market by assessing some basic statistical properties of prices for the ten most liquid stocks listed on the Bucharest Stock Exchange. More specifically, by testing if stock price series exhibit a random walk-like behaviour. For robustness of the results, two unit root tests—the Augmented Dickey-Fuller and the Kwiatkowski-Phillips-Schmidt-Shin—are used to measure stationarity for both prices and returns, and determine if price dynamics is determined by an order one integrated process (a proxy for the random walk). Further Lo and MacKinley‘s Variance Ratio Test is applied to study if the variance of returns is a linear time-dependent function (a well-known property of a random variable). The analysis is done for a period between 15 October 1997, or the listing date on the stock exchange, respectively, and 10 April 2013, for both daily and weekly observations. Furthermore, to take into account the distortive effects of the financial turmoil from 2007-2009 on market efficiency, a separate analysis has been conducted for two sub-periods, pre- and post-recession, respectively.

Suggested Citation

  • Pasca Lucian, 2015. "Testing The Weak-Form Efficiency Of The Romanian Capital Market By Assessing The Random Walk-Like Behaviour Of Stock Prices," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 264-269, April.
  • Handle: RePEc:cbu:jrnlec:y:2015:v:2:p:264-269
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    References listed on IDEAS

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    1. Bogdan Dima & Laura Raisa Milos, 2009. "Testing The Efficiency Market Hypothesis For The Romanian Stock Market," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(11), pages 1-41.
    2. 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.
    3. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    4. Dragota, Victor & Mitrica, Eugen, 2004. "Emergent capital markets' efficiency: The case of Romania," European Journal of Operational Research, Elsevier, vol. 155(2), pages 353-360, June.
    5. Barna, Flavia & Dima, Bogdan & Labunet, Aurora, 2003. "Eficienţa Pieţei Financiare Din România - Condiţie Necesară În Perspectiva Aderării La Uniunea Europeană," MPRA Paper 5870, University Library of Munich, Germany.
    6. Dragota, Victor & Stoian, Andreea & Pele, Daniel Traian & Mitrica, Eugen & Bensafta, Malik, 2009. "The Development of the Romanian Capital Market: Evidences on Information Efficiency," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 147-160, June.
    7. Andrei STĂNCULESCU & Eugen MITRICĂ, 2012. "Testing weak form informational efficiency on the Romanian capital market," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(9(574)), pages 29-36, September.
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