Market Efficiency in Emerging Stock Market

Abstract

This study seeks evidence on whether the return series on Bangladesh's Dhaka Stock Exchange (DSE) is independent and followsthe random walk model. The study focuses on assessing if the DSE deviates from idealised efficiency. The sample primarily includes all the listed companies on the DSE daily price index over the period 1988 to 2000. The results of both non-parametric (Kolmogrov-Smirnov: normality test and run test) and parametric test (Auto-correlation test, Autoregressive model, ARIMA model) provide evidence that the security returns do not follow the random walk model and the significant auto-correlation coefficient at different lags reject the null hypothesis of weak-form efficiency. The results are consistent with observations in different sub-samples without outlier and for individual securities. This anomaly with the efficient market hypothesis supports the thought that the market does not respond to new information instantaneously. This may be due to a delay in dissemination to new price sensitive information or biases (under or over reaction) in the response of market participants to such information. It may also be for the momentum effect related to herding in particular 'positive feed back trading' or 'trend following' the trading strategy by the average investors. JEL Classification: G12, G14, G34

The performance of diversified emerging market equity funds

“…Many studies suggest inefficiency or a lower level of efficiency in emerging markets compared to developed markets (See for example,Fillis, 2006;Mobarek, Mollah, and Bhuyan, 2008, Risso, 2009) while others contradict this claim (see, for example,Karamera, Ojah, and Cole, 1999;Griffin, Kelly, and Nardari, 2010). However, there is agreement on the heterogeneous levels in efficiency across these markets.…”

An Empirical Analysis of Higher Moment Capital Asset Pricing Model for Bangladesh Stock Market

“…There are some actions (Hussain, Chakraborty, & Kabir, 2008) which can improve the efficiency of the DSE market such as: ensuring asymmetric information among all investors, proper implication of rules of regulatory commission and introducing sophisticated means of investment and tools. Mobarek, Mollah, Sabur and Bhuyan (2008) searched for the independence and randomness in the return series of DSE market by using both non-parametric and parametric tests and noticed that the security returns do not follow random walk model. Alam, Yasmin, Rahman, and Uddin (2011) found that the frequency distribution of the stock prices in DSE does not follow a normal or uniform distribution.…”

A Test of Market Efficiency When Short Selling Is Prohibited: A Case of the Dhaka Stock Exchange

“…In addition to DSE index returns, Mobarek et al (2008) examine individual stock returns from 1988-2000 provided by a data vendor. Even allowing for structural changes following the 1996 crash, they find that there is significant auto correlation over the sample period.…”

“…Our analysis updates the sample time period, and following the suggestion of Mobarek et al (2008), examines the dynamics of individual stock price data obtained directly from the exchange. This allows us to also adjust for dividends, share splits, and other corporate events.…”