Is Pakistan Stock Market Moving Towards Weak-Form Efficiency? Evidence from the Karachi Stock Exchange and the Random Walk Nature of Free-Float of Shares of KSE 30 Index.

Abstract

In this study, we have attempted to seek evidence for weak-form of market efficiency for KSE 100 Index. Index returns have been studied from 1st January, 1992 to 30th April, 2013. For further analysis, return series has been divided into these groups : 1992-2012, 1992-1994, 1995-1997, 1998-2000, 2001-2003, 2004-2006, 2007-2009, 2010-2012 and 2013. The paper has made use of both NonParametric tests (Kolmogrov-Smirnov goodness of fitness test, Runs test and Phillips-Perron test) and Parametric tests (Autocorrelation test, Box-Pierce (Q) statistic test, Ljung and Box (Q) Statistic test, Augmented Dickey-fuller test, Dickey-fuller GLS test, Jarque-Bera test, Kwiatkowski, Phillips, Schmidt and Shin test, Auto-regression and ARIMA model). For further analysis, Runs test has also been run on 20 companies return series for comparison purpose with the results of index return series. In addition, from KSE 30 Index, 20 companies return series based on the free-float of shares have also been analyzed through Runs test to check if increase in numbers of floating shares does increase the randomness in return series or not. To our knowledge, this paper is the first one on KSE 100 Index to study the overall time frame of return series of KSE 100 Index of 22 years with the several random walk and weakform efficiency tests to ensure the consistency of results; and to compare the results of runs test of index return series with the results of runs test on companies return series from KSE 100 and KSE 30 Indexes. Overall KSE 100 Index has found to be weak-form inefficient, but the last 4 years have shown some signs of efficiency. Companies return series from KSE 30 Index are found to be more random than companies return series from KSE100 Index.

An Analysis of Coincidence between KSE-100 and S&P 500 Index using Spectral Approach

“…It means that both markets can be termed as efficient in accordance to weak form EMH. The results for KSE-100 were in contrast with the work of Akber and Muhammad (2013) who concluded that KSE-100 cannot be treated as fully efficient market in accordance to weak form EMH. After determining that both series are stationary, we go for establishing a causal relationship between them.…”

African Emerging Equity Markets Re‐examined: Testing the Weak Form Efficiency Theory

“…Financial markets have long been recognized as a vital catalyst in the attainment of economic development and growth (Neidhardt, 2009;Andrianaivo and Yartey, 2010;Asiri and Alzeera, 2013;Akber and Muhammad, 2013). Particularly, stock markets play a major role in the allocation of ownership of the economy's capital stock.…”

Do investors herd? An examination of Pakistan stock exchange

“…Furthermore, Chishti, Chaudhry, and Afzal (2016) using a variety of test including ADF, PP, Unit root and Ljung‐Box Q‐statistics rejected the null hypothesis of a random walk. However, Akber and Muhammad (2014) while seeking evidence of weak form efficiency in KSE 100 and KSE 30 index applied parametric, non‐parametric and run test and found KSE 100 index to be weak form inefficient whereas KSE 30 index to exhibit some randomness. Likewise, N. U. Khan and Khan (2016) nullified weak form of efficiency for high‐frequency data‐daily and week returns of stocks listed on PSX and observed randomness in monthly returns.…”