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.
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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.
|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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