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Stock Market Predictability in the MENA: Evidence from New Variance Ratio Tests and Technical Trade Analysis

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  • Thomas Lagoarde Segot
  • Brian M Lucey

Abstract

The objective of this paper is to test for predictability in the Middle-Eastern North African (MENA) markets by investigating both the weak-form efficiency hypothesis (WFEMH) and the presence of abnormal returns. Starting with tests for the random-walk hypothesis, we use daily data returns and a battery of econometric tests including unit-root analysis, individual and multiple variance ratio, wild bootstrapping and non-parametric tests based on ranks. Our results suggest that only the region’s largest markets, Israel and Turkey, follow a random walk. Turning to technical trade analysis, our results reinforce the hypothesis of stock market predictability. Both variable moving average (VMA) and trade range breaking (TRB) trade rules yield significant abnormal returns. We complete the analysis with profit simulations based on the breakeven costs computation methodology and taking into account local transaction costs. Our findings highlight the presence of significant portfolio investment opportunities in the MENA.

Suggested Citation

  • Thomas Lagoarde Segot & Brian M Lucey, 2005. "Stock Market Predictability in the MENA: Evidence from New Variance Ratio Tests and Technical Trade Analysis," The Institute for International Integration Studies Discussion Paper Series iiisdp92, IIIS.
  • Handle: RePEc:iis:dispap:iiisdp92
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    Cited by:

    1. Feyyaz Zeren & Filiz Konuk, 2013. "Testing The Random Walk Hypothesis For Emerging Markets: Evidence From Linear And Non-Linear Unit Root Tests," Romanian Economic Business Review, Romanian-American University, vol. 8(4), pages 61-71, december.
    2. Hiremath, Gourishankar S & Bandi, Kamaiah, 2012. "Variance ratios, structural breaks and nonrandom walk behaviour in the Indian stock returns," MPRA Paper 48710, University Library of Munich, Germany.
    3. Hiremath, Gourishankar S & Bandi, Kamaiah, 2010. "Some Further Evidence on the Behaviour of Stock Returns in India," MPRA Paper 48518, University Library of Munich, Germany.
    4. Walid Abdmoulah, "undated". "Testing the Evolving Efficiency of 11 Arab Stock Markets," API-Working Paper Series 0907, Arab Planning Institute - Kuwait, Information Center.

    More about this item

    Keywords

    Emerging markets; stock market predictability; portfolio analysis.;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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