Testing the Weak Form of Efficient Market Hypothesis: Empirical Evidence from Equity Markets

Dias, Rui; Heliodoro, Paula; Teixeira, Nuno; Godinho, Teresa

doi:10.11648/j.ijafrm.20200501.14

Cited by 28 publications

(25 citation statements)

References 73 publications

(108 reference statements)

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…The lack of consensus among economists and financial analysts regarding market efficiency requires the study of the efficient market hypothesis (EMH). Another significant reason to study market efficiency is the role of stock markets to act as financial intermediaries between the saver and the borrower in the distribution of scarce resources via the price mechanism (Dias, da Silva, and Dionísio, 2019;Dias et al, 2021;Dias, Heliodoro, Teixeira, et al, 2020;Dias, Teixeira, Machova, et al, 2020;Jain, 2020;Karasiński, 2020) The authors Obayagbona and Igbinosa (2015), Kelikume (2016), Abakah, Alagidede, Mensah, and Ohene-Asare ( 2018), Hawaldar, Rohith, and Pinto (2020) analyzed market efficiency, in its weak form, in the African stock indexes. Obayagbona and Igbinosa (2015) tested the Nigerian market in the context of market efficiency, the authors show that the price series do not show randomness, that is, they present long memories.…”

Section: Literature Reviewmentioning

confidence: 99%

“…These events significantly infected developed economies, however, this significance was not dense in emerging economies. Understanding the synchronism between stock markets, as well as the study on the occurrence of movements in periods of turbulence is important for investors, investment fund managers, academics, in various aspects, particularly when it is to implement strategies for diversifying efficient portfolios (Alexandre, Dias, and Heliodoro, 2020;Alexandre, Heliodoro, and Dias, 2019;Dias, and Pereira, 2020;Dias and Carvalho, 2020;Dias, da Silva, and Dionysus, 2019;Alexandre, 2019, 2020;Dias, Heliodoro, Alexan-dre, Santos, and Farinha, 2021;Vasco, 2020a, 2020b;Dias, Heliodoro, Alexandre, et al, 2020a, 2020aDias, Heliodoro, Teixeira, andGodinho, 2020a, 2020b;Dias, Pardal, Teixeira, & Machová, 2020c;Heliodoro, Dias, Alexandre, and Vasco, 2020;Sparrow, P., Dias, R., Šuleř, P., Teixeira, N., and Krulický, 2020;Santos and Dias, 2020).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Random Walks and Market Efficiency Tests: Evidence for Us and African Capital Markets

Dias¹,

Santos²,

Alexandre³

et al. 2021

International Scientific Conference EMAN – Economics and Management: How to Cope With Disrupted Times

Self Cite

View full text Add to dashboard Cite

The 2020 Russia-Saudi Oil Price War was an economic war triggered in March 2020 by Saudi Arabia in response to Russia’s refusal to reduce oil production to keep oil prices at a moderate level. This economic conflict resulted in a sharp drop in the price of oil in 2020, as well as crashes in international markets. In the light of these events, our aim was to test the efficient market hypothesis, in its weak form, in the stock markets of Botswana (BSE), Egypt (EGX 100), Kenya (NSE 20), Moroccan All Shares (MASI), Tunisia (Tunindex), and the MARKET of the USA (DOWJONES INDUSTRIALS), in the period of Septem¬ber 2, 2019 to January 11, 2021. The results therefore support the evidence that the random walk hypoth¬esis is not supported by the financial markets analyzed in this period of global pandemic. The values of variance ratios are lower than the unit, which implies that the yields are autocorrelated in time and, there is reversal to the mean. In order to validate the results, we estimate the model αDFA that shows that the stock markets NSE 20 (0.75), TUNINDEX (0.69), MASI (0.63), EGX 100 (0.64), BSE (0.61), DOW JONES (0.58) show autocorrelation in their profitability, that is, these markets show signs of (in) efficiency, in its weak form, persistence in profitability, validating the results of the variance test by Rankings and Wright Signs. In conclusion we can show that the U.S. stock market has more market efficiency when compared to the African stock markets analyzed. The authors consider that the results achieved are of interest to investors looking for opportunities for portfolio diversification in these regional stock markets.

show abstract

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Random Walks and Market Efficiency Tests: Evidence for Us and African Capital Markets

Dias¹,

Santos²,

Alexandre³

et al. 2021

International Scientific Conference EMAN – Economics and Management: How to Cope With Disrupted Times

Self Cite

View full text Add to dashboard Cite

show abstract

“…We have seen a strong correlation between past and future data series, which makes it possible for the investor to have anomalous profitability when selecting an appropriate trading strategy. The possibility of investors being able to pre-dict future price changes may lead to imbalances in financial markets, making it difficult to implement efficient portfolio diversification strategies (Alexandre, Dias, and Heliodoro, 2020;Alexandre, Heliodoro, and Dias, 2019;Dias, R. and Pereira, 2020;Dias and Carvalho, 2020;Dias, da Silva, and Dionysus, 2019;Dias, Heliodoro, and Alexandre, 2019, 2020b, 2020aDias, Heliodoro, Alexandre, Santos, and Farinha, 2021;Vasco, 2020a, 2020b;Dias, Heliodoro, Alexandre, et al, 2020a, 2020aDias, Heliodoro, Teixeira, and Godinho, 2020;Dias, Pardal, Teixeira, and Machová, 2020;Dias, Teixeira, Machova, et al, 2020;Heliodoro, Dias, Alexandre, and Vasco, 2020;Sparrow, P., Dias, R., Šuleř, P., Teixeira, N., and Krulický, 2020;Santos and Dias, 2020).…”

Section: Introductionmentioning

confidence: 99%

Has the Global Pandemic of 2020 Led to Persistence in the Share Prices of Large Global Companies?

Santos¹,

Dias²,

Vasco³

et al. 2021

International Scientific Conference EMAN – Economics and Management: How to Cope With Disrupted Times

Self Cite

View full text Add to dashboard Cite

This paper aims to analyze the predictability of the stocks of Apple, Microsoft Amazon.com, Tesla, Facebook, Samsung, Electronics, Johnson & Johnson, Walmart, in the period from October 1, 2019 to January 11, 2021. To carry out such an analysis, it is intended to answer two research questions, namely: (i) is there predictability in the stock prices of the companies under analysis? (ii) Can investors diversify risk by incorporating these companies’ shares into their portfolios? The results of the Exponents Detrended Fluctuation Analysis (DFA) show that Apple (0.51) Microsoft (0.49), Amazon.com (0.53), Samsung Electronics (0.53), Johnson & Johnson (0.53) do not have long memories in their time series, that is, investors cannot obtain abnormal profitability without incurring additional risk. Walmart (0.41) has anti-persistence, while Tesla (0.60), Facebook (0.55) indicate some predictability, meaning investors adjusting their trading strategies to the necessary missteps may have some above-average profitability, which partly rejects the first question of the research. To answer the second research question, we estimated the Detrended cross-correlation coefficient (pDCCA) model, which indicates 17 mean correlation coefficients (≈ 0.333 → ≈ 0.666), 7 strong cross-trend correlation coefficients (0.666 → ≈ 1,000), 4 weak correlation coefficients (≈ 0.000 → ≈ 0.333). These results show that investors should be careful to incorporate the shares of these companies into a single portfolio; the suggestion would be to group only the shares of companies that do not present predictability and have low rhoDCCA. The authors consider that this evidence will be important for institutional investors when carrying out trading strategies based on maximizing profitability, but also mitigating risk when diversifying.

show abstract

“…If a given stock market is strongly linked to the stock market of another country, the financial stability of the first depends, in part, on the financial stability of the second. Thus, the occurrence of integration between markets can have significant implications for the international diversification of risk Heliodoro, 2020a, 2020b;Alexandre, Heliodoro, and Dias, 2019;Dias and Carvalho, 2020;Alexandre, 2020, 2019;Dias, Heliodoro, Alexandre, Santos, and Farinha, 2021;Vasco, 2020b, 2020a;Dias, Heliodoro, Teixeira, and Godinho, 2020;Dias, Pardal, Teixeira, and Machová, 2020;Dias and Pereira, 2021;Heliodoro, Dias, and Alexandre, 2020;Pardal, P., Dias, R., Šuleř, P., Teixeira, N., and Krulický, 2020).…”

Section: Introductionmentioning

confidence: 99%

The Impact of Covid-19 on European Financial Markets: An Empirical Analysis

Bagão¹,

Dias²,

Heliodoro³

et al. 2020

LIMEN - International Scientific-Business Conference - Leadership, Innovation, Management and Economics: Integrated Politics Of

Self Cite

View full text Add to dashboard Cite

The fast spread of coronavirus (COVID-19) had negative impacts on financial markets worldwide. It created uncertainty and a lack of confidence, causing unprecedented levels of risk, causing sharp losses to investors in a very short period. In view of these events, this essay aims to investigate the relationship between Covid-19 (confirmed cases and deaths), and the stock market indexes of Greece (ATG), France (CAC40), Germany (DAX 30), United Kingdom (FTSE 100), Italy (FTSE MID), Spain (IBEX 35), Ireland (ISEQ), and Portugal (PSI 20), from December 31st, 2019 to July 23rd, 2020. In order to achieve such an analysis, we want to validate if: the increase in cases and deaths resulting from Covid-19 have any connection with the financial markets under analysis? If so, do these connections cause shocks in European financial markets? The results suggest structure breaks, mostly, in March 2020. Covid-19 data (confirmed cases) integrate with the Covid-19 data series (deaths), with the Spanish market (IBEX 35), Greece (ATG), and Italy (FTSE MID). However, the Covid-19 data series (deaths), is synchronized with the Covid-19 data (confirmed cases), with the markets of Germany (DAX 30), France (CAC 40), Ireland (ISEQ), Italy ( FTSE MID), United Kingdom (FTSE 100) and Portugal (PSI 20), just does not synchronize with the Greek market (ATG). We can easily see that the Covid-19 data series (deaths) has a major impact on Europe's financial markets. The results of the VAR Granger Causality / Block Exogeneity Wald Tests model suggest 2 bidirectional causal relationships between confirmed cases and deaths from the Covid-19 virus. However, there were no shocks between Covid-19 data (confirmed cases and deaths) and the financial markets under analysis. As a final discussion, we consider that investors should avoid investments in the stock exchange, at least while this pandemic lasts, and rebalance their portfolios in hedging and/or sovereign debt assets, to mitigate risk and improve the efficiency of their portfolios.

show abstract

Testing the Weak Form of Efficient Market Hypothesis: Empirical Evidence from Equity Markets

Cited by 28 publications

References 73 publications

Random Walks and Market Efficiency Tests: Evidence for Us and African Capital Markets

Random Walks and Market Efficiency Tests: Evidence for Us and African Capital Markets

Has the Global Pandemic of 2020 Led to Persistence in the Share Prices of Large Global Companies?

The Impact of Covid-19 on European Financial Markets: An Empirical Analysis

Contact Info

Product

Resources

About