IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2018-05-14.html
   My bibliography  Save this article

Predicting the Stock Market Efficiency in Weak Form: A Study on Dhaka Stock Exchange

Author

Listed:
  • Masud Pervez

    (Graduate student, Department of Economics and Banking, International Islamic University Chittagong; Chittagong, Bangladesh,)

  • Md. Harun Ur Rashid

    (Department of Economics and Banking, International Islamic University Chittagong, Kumira, Chittagong - 4318, Bangladesh,)

  • Md. Asad Iqbal Chowdhury

    (Department of Economics and Banking, IIUC, Chittagong, Bangladesh)

  • Mahbubur Rahaman

    (Department of Business Administration, Adjunct Faculty (Finance), IIUC, Chittagong, Bangladesh)

Abstract

This study aims to examine the weak form efficiency of Dhaka Stock Exchange (DSE) using random walk model of EMH based on daily return series. The study applies both non-parametric [Kolmogorov-Smirnov test with Lilliefors coefficient, run test] and parametric test [autocorrelation test, unit root test and variance ratio test] on DSE general index, DSE broad index and DSE30 index ranging from June 1, 2004, to March 18, 2018. The results of the tests reject the null hypothesis of randomness. On the other hand, the result of the run test shows that share prices of DSE30 index follow the random walk. The return series of DSE broad index show some signs in favour of randomness by autocorrelation test while the returns of DSE general index support the efficiency concerning variance ratio test under both homoscedastic and heteroskedastic assumptions. The overall results of the study show inefficiency of DSE in the weak form which means the investor has a chance to make an abnormal profit predicting the historical data. This study also provides valuable insight to the shareholders, investors, the board of directors and regulatory bodies.

Suggested Citation

  • Masud Pervez & Md. Harun Ur Rashid & Md. Asad Iqbal Chowdhury & Mahbubur Rahaman, 2018. "Predicting the Stock Market Efficiency in Weak Form: A Study on Dhaka Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 8(5), pages 88-95.
  • Handle: RePEc:eco:journ1:2018-05-14
    as

    Download full text from publisher

    File URL: https://www.econjournals.com/index.php/ijefi/article/download/6725/pdf
    Download Restriction: no

    File URL: https://www.econjournals.com/index.php/ijefi/article/view/6725/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chan, Kam C & Gup, Benton E & Pan, Ming-Shiun, 1992. "An Empirical Analysis of Stock Prices in Major Asian Markets and the United States," The Financial Review, Eastern Finance Association, vol. 27(2), pages 289-307, May.
    2. Graham Smith & Keith Jefferis & Hyun-Jung Ryoo, 2002. "African stock markets: multiple variance ratio tests of random walks," Applied Financial Economics, Taylor & Francis Journals, vol. 12(7), pages 475-484.
    3. Abdullahil Mamun & Mohammad Hasmat Ali & Nazamul Hoque & Md Masrurul Mowla & Shahanara Basher, 2018. "The Causality between Stock Market Development and Economic Growth: Econometric Evidence from Bangladesh," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(5), pages 212-220, May.
    4. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
    5. Karemera, David & Ojah, Kalu & Cole, John A, 1999. "Random Walks and Market Efficiency Tests: Evidence from Emerging Equity Markets," Review of Quantitative Finance and Accounting, Springer, vol. 13(2), pages 171-188, September.
    6. Md. Mahmudul Alam & Kazi Ashraful Alam & Md. Gazi Salah Uddin, 2017. "Market Depth and Risk Return Analysis of Dhaka Stock Exchange: An Empirical Test of Market Efficiency," Papers 1702.01354, arXiv.org.
    7. 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.
    8. 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.
    9. Asma Mobarek & A. Sabur Mollah & Rafiqul Bhuyan, 2008. "Market Efficiency in Emerging Stock Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(1), pages 17-41, January.
    10. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
    11. Ojah, Kalu & Karemera, David, 1999. "Random Walks and Market Efficiency Tests of Latin American Emerging Equity Markets: A Revisit," The Financial Review, Eastern Finance Association, vol. 34(2), pages 57-72, May.
    12. Sharma, J. L. & Kennedy, Robert E., 1977. "A Comparative Analysis of Stock Price Behavior on the Bombay, London, and New York Stock Exchanges," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(3), pages 391-413, September.
    13. Chow, K. Victor & Denning, Karen C., 1993. "A simple multiple variance ratio test," Journal of Econometrics, Elsevier, vol. 58(3), pages 385-401, August.
    14. Hudson, Robert & Dempsey, Michael & Keasey, Kevin, 1996. "A note on the weak form efficiency of capital markets: The application of simple technical trading rules to UK stock prices - 1935 to 1994," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1121-1132, July.
    15. Ainul Islam & Mohammed Khaled, 2005. "Tests of Weak-Form Efficiency of the Dhaka Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1613-1624.
    16. Cheng F. Lee & Gong-meng Chen & Oliver M. Rui, 2001. "Stock Returns And Volatility On China'S Stock Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 523-543, December.
    17. Cheng F. Lee & Gong-meng Chen & Oliver M. Rui, 2001. "Stock Returns And Volatility On China'S Stock Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 523-543, December.
    18. M. K. Hassan & S. S. H. Chowdhury, 2008. "Efficiency of Bangladesh stock market: evidence from monthly index and individual firm data," Applied Financial Economics, Taylor & Francis Journals, vol. 18(9), pages 749-758.
    19. Nicolaas Groenewold, 1997. "Share market efficiency: tests using daily data for Australia and New Zealand," Applied Financial Economics, Taylor & Francis Journals, vol. 7(6), pages 645-657.
    20. Syed Basher & M. Kabir Hassan & Anisul Islam, 2007. "Time-varying volatility and equity returns in Bangladesh stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 17(17), pages 1393-1407.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Awaz Mohamed Saleem & Hazheen Mardan Mustafa & Zeravan Abdulmuhsen Asaad & Amjad Saber Al-Delawi, 2023. "Regional Stock Market Efficiency at Weak Form after the Covid-19 Vaccination Approval," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 63-70, November.
    2. Md. Harun Ur Rashid & Shah Asadullah Mohd. Zobair & Md. Asad Iqbal Chowdhury & Azharul Islam, 2020. "Corporate governance and banks’ productivity: evidence from the banking industry in Bangladesh," Business Research, Springer;German Academic Association for Business Research, vol. 13(2), pages 615-637, July.
    3. Riyanka Baral & Debasis Patnaik, 2023. "Bank efficiency and governance: Evidence from Indian banking," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(3), pages 957-985, September.
    4. Mahamuda Firoj & Nair Sultana & Sharmina Khanom & Md Harun Ur Rashid & Abeda Sultana, 2023. "Pollution haven hypothesis and the environmental Kuznets curve of Bangladesh: an empirical investigation," Asia-Pacific Journal of Regional Science, Springer, vol. 7(1), pages 197-227, March.
    5. Erdas Mehmet Levent, 2019. "Validity of Weak-Form Market Efficiency in Central and Eastern European Countries (CEECs): Evidence from Linear and Nonlinear Unit Root Tests," Review of Economic Perspectives, Sciendo, vol. 19(4), pages 399-428, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Felix Schindler, 2014. "Persistence and Predictability in UK House Price Movements," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 132-163, January.
    3. Felix Schindler, 2013. "Predictability and Persistence of the Price Movements of the S&P/Case-Shiller House Price Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 44-90, January.
    4. Andrew C. Worthington & Helen Higgs, 2003. "Weak-form market efficiency in European emerging and developed stock markets," School of Economics and Finance Discussion Papers and Working Papers Series 159, School of Economics and Finance, Queensland University of Technology.
    5. Amélie Charles & Olivier Darné, 2009. "Variance‐Ratio Tests Of Random Walk: An Overview," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 503-527, July.
    6. Hiremath, Gourishankar S & Bandi, Kamaiah, 2009. "On the random walk characteristics of stock returns in India," MPRA Paper 46499, University Library of Munich, Germany.
    7. Siva Kiran & Prabhakar Rao.R, 2019. "Analysis of Stock Market Efficiency in Emerging Markets: Evidence from BRICS," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 22(72), pages 60-77, June.
    8. Graham Smith, 2008. "Liquidity And The Informational Efficiency Of African Stock Markets," South African Journal of Economics, Economic Society of South Africa, vol. 76(2), pages 161-175, June.
    9. Subrata Roy, 2018. "Testing Random Walk and Market Efficiency: A Cross-Stock Market Analysis," Foreign Trade Review, , vol. 53(4), pages 225-238, November.
    10. Mamdouh Abdulaziz Saleh Al-Faryan & Everton Dockery, 2021. "Testing for efficiency in the Saudi stock market: does corporate governance change matter?," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 61-90, July.
    11. Mobarek, Asma & Fiorante, Angelo, 2014. "The prospects of BRIC countries: Testing weak-form market efficiency," Research in International Business and Finance, Elsevier, vol. 30(C), pages 217-232.
    12. Charles, Amélie & Darné, Olivier, 2009. "The random walk hypothesis for Chinese stock markets: Evidence from variance ratio tests," Economic Systems, Elsevier, vol. 33(2), pages 117-126, June.
    13. José Carlos Dias & Luís Lopes & Vitor Martins & José Manuel Benzinho, 2004. "Efficiency tests in the Iberian stock markets," Finance 0406001, University Library of Munich, Germany.
    14. Fathia Elleuch Lahyani, 2014. "Are MENA and Pacific Basin Stock Equity Markets Predictable?," SAGE Open, , vol. 4(4), pages 21582440145, December.
    15. Asma Mobarek & A. Sabur Mollah & Rafiqul Bhuyan, 2008. "Market Efficiency in Emerging Stock Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(1), pages 17-41, January.
    16. Aye, Goodness C. & Gil-Alana, Luis A. & Gupta, Rangan & Wohar, Mark E., 2017. "The efficiency of the art market: Evidence from variance ratio tests, linear and nonlinear fractional integration approaches," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 283-294.
    17. Charles, Amélie & Darné, Olivier, 2009. "The efficiency of the crude oil markets: Evidence from variance ratio tests," Energy Policy, Elsevier, vol. 37(11), pages 4267-4272, November.
    18. Kim, Jae H. & Shamsuddin, Abul, 2008. "Are Asian stock markets efficient? Evidence from new multiple variance ratio tests," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 518-532, June.
    19. Jay Squalli, 2006. "A non-parametric assessment of weak-form efficiency in the UAE financial markets," Applied Financial Economics, Taylor & Francis Journals, vol. 16(18), pages 1365-1373.
    20. Angelovska, Julijana, 2018. "Testing Weak Form Of Stock Market Efficiency At The Macedonian Stock Exchange," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 9(2), pages 133-144.

    More about this item

    Keywords

    Stock market; Weak form efficiency; DSE; EMH.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G2 - Financial Economics - - Financial Institutions and Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2018-05-14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.