On the validity of the random walk hypothesis applied to the Dhaka stock exchange.

Hasan, Mohammad S (2004) On the validity of the random walk hypothesis applied to the Dhaka stock exchange. International Journal of Theoretical & Applied Finance, 7 (8). pp. 1069-1085. ISSN 0219-0249. (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.1142/S0219024904002797

Abstract

This paper employs a battery of statistical tests to examine the random walk variant of the weak-form efficient market hypothesis (EMH) using the daily data of the Dhaka Stock Exchange, the major equity market of Bangladesh, over a period of January 1990 to December 2000. The test results, however, are at variance across testing procedures and sub-periods. Results based on the random walk model and unit root tests show that the null hypothesis of randomness cannot be rejected and stock prices have a significant random walk or permanent component. Our analysis of autocorrelation functions indicates mean-reversion behavior of stock returns in most cases albeit with stock returns exhibiting some memory and predictable components during the bubble and post-speculation periods. The evaluation of the EGARCH-M model suggests significant asymmetric and leverage effects during the sub-period of speculative bubbles of 1996–1997. The BDS test indicates evidence of nonlinear long-term dependence during the pre-speculation period, while during the speculation and post-speculation periods the null hypothesis of nonlinear independence was not rejected. Overall, based on this evidence we do not categorically claim that the Dhaka Stock Exchange is weak-form efficient. However, these findings underscore the predictive significance and relevance of the random walk hypothesis as a generalized theory in explaining movements of share prices.

Item Type: Article
Uncontrolled keywords: BDS statistic Dhaka Stock Exchange EGARCH model JEL Classification: G14 JEL Classification: G15 JEL Classification: P34 random walk model variance ratio Weak-form efficient market hypothesis
Subjects: H Social Sciences
Divisions: Faculties > Social Sciences > Kent Business School > Accounting and Finance
Depositing User: Rebecca Stevenson
Date Deposited: 06 Jan 2010 14:18
Last Modified: 06 Jan 2010 14:18
Resource URI: http://kar.kent.ac.uk/id/eprint/23577 (The current URI for this page, for reference purposes)
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