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Evidence of random walk in Pakistan stock exchange: An emerging stock market study

Author

Listed:
  • Musarrat SHAMSHIR

    () (Hamdard Institute of Education and Social Sciences, Faculty of Social Sciences and Humanities, Hamdard University, Karachi, Pakistan.)

  • Mirza Jawwad BAIG

    () (Institute of Space and Planetary Astrophysics (ISPA), Faculty of Science, University of Karachi, Karachi- Pakistan.)

  • Khalid MUSTAFA

    () (Department of Economics, Faculty of Social Sciences, University of Karachi, Karachi, Pakistan.)

Abstract

The study reports the empirical evidence on the presence of weak-form efficiency under the random walk hypothesis on the emerging stock market of Pakistan; Pakistan stock exchange (PSX), formerly known as Karachi stock exchange (KSE) from January 01, 2009 to August 31, 2014, by investigating two categories of stock indices; one in which the selection of firms is based upon market capitalization and the other where the selection criteria of firms is based upon free-float methodology. The study applied both non-parametric and parametric tests; Kolgomorov-Simirnov (K-S), runs, serial correlation and unit root tests on daily returns of KSE-100 index; KSE- all share index; KSE-30 index and KMI-30 index. The study finds absence of random walk on the former two indices, where chronology of firms and selection criteria are based on traditional market capitalization technique. However, evidence of random walk is found in stock-indices where selection of firms is based on free floating methodology. The trace of random walk advocates the free floating methodology over market capitalization criteria.

Suggested Citation

  • Musarrat SHAMSHIR & Mirza Jawwad BAIG & Khalid MUSTAFA, 2018. "Evidence of random walk in Pakistan stock exchange: An emerging stock market study," Journal of Economics Library, KSP Journals, vol. 5(1), pages 103-117, March.
  • Handle: RePEc:ksp:journ5:v:5:y:2018:i:1:p:103-117
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Random walk; Weak-form efficiency; Karachi stock exchange; Pakistan stock exchange; Unit root test; Autocorrelation.;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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