On the Efficiency of Stock Markets: A Case of Selected OPEC Member Countries

Abstract

The study investigates the stock market efficiency of selected OPEC member countries within the context of random walk hypothesis and volatility approaches using monthly data on stock market indices from January, 2005 to April, 2016. Parametric (variance ratio: homoskedastic and heteroskedastic martingale), nonparametric (the Wright ranks and scores) tests and ARCHtype estimation are performed. Results of both parametric and nonparametric tests indicate that only Qatar's stock market is weak-form efficient. The volatility results suggest that monthly stock returns of OPEC countries are volatile, with Qatar being most volatile and shocks to volatility of stock returns are asymmetric. The implications of this are that: first, investors should be conscious of these shocks when making risk-return decision of their portfolios; second, the results provide useful information to regulators to enable them develop safeguard mechanisms to shield the market from possible asymmetric information emanating from the participants.

Testing the Weak Form of Efficient Market Hypothesis: Empirical Evidence in the Context of the Covid-19 Pandemic

“…These findings imply that prices do not fully reflect the information available and that changes in prices are not independent and identically distributed. These findings are in line with the evidence suggested by the authors Atac and Tas (2019), Olubiyi and Olopade (2019), Mphoeng (2019) that show inefficiency, in its weak form, which allows investors to have abnormal gains without incurring increased risk. Source: Own elaboration…”

“…Chaker and Sabah (2018) tested the efficiency, in their weak form, in the markets of the United Arad Emirates (UAE), Saudi Arabia, Oman, Kuwait and Bahrain, showing that none of the analysed markets follow the random walk hypothesis. Atac and Tas (2019), Olubiyi and Olopade (2019), Mphoeng (2019) examined the market efficiency, in its weak form. Atac and Tas (2019) investigated the Istanbul stock exchange, and have shown that the efficiency hypothesis is rejected.…”

Resource curse hypothesis: fresh evidence from OPEC member countries

“…The premise for studying the OPEC member countries is justified for the fact that their economic performance has been linked to oil sector since they heavily depend on oil revenue. This is not farfetched looking at the share of oil exports in their total exports that fluctuates around 70 per cent, with average of 38 per cent contribution to their GDP for the past 10 years (Olubiyi and Olopade, 2018). Similarly, the low degree of financial development in these countries urges policy makers and researchers to consider the study of these countries as posited by Rad et al (2018).…”