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Efficient Market Hypothesis in South Africa: Evidence from a threshold autoregressive (TAR) model

  • Van Heerden, Dorathea
  • Rodrigues, Jose
  • Hockly, Dale
  • Lambert, Bongani
  • Taljard, Tjaart
  • Phiri, Andrew

This study deviates from the conventional use of a linear approach in testing for the efficiency market hypothesis (EMH) for the Johannesburg Stock Exchange (JSE) between the periods 2001:01 to 2013:07. By making use of a threshold autoregressive (TAR) model and corresponding asymmetric unit root tests, our study demonstrates how the stock market indexes evolve as highly persistent, nonlinear process and yet for a majority of the time series under observation, the formal unit root tests reject the hypothesis of stationarity among the variables. These results bridge two opposing contentions obtained from previous studies by concluding that while a number of stock prices under the JSE stock market may not evolve as pure unit root processes, the time series are, however, highly persistent to an extent of being able to be deemed as weak-form efficient.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50544.

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Date of creation: 10 Oct 2013
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Handle: RePEc:pra:mprapa:50544
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  3. Francis X. Diebold & Lutz Kilian, 1999. "Unit Root Tests are Useful for Selecting Forecasting Models," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-063, New York University, Leonard N. Stern School of Business-.
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