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Predicting the Stock Market Efficiency in Weak Form: A Study on Dhaka Stock Exchange

Author

Listed:
  • Masud Pervez

    (Graduate student, Department of Economics and Banking, International Islamic University Chittagong; Chittagong, Bangladesh,)

  • Md. Harun Ur Rashid

    (Department of Economics and Banking, International Islamic University Chittagong, Kumira, Chittagong - 4318, Bangladesh,)

  • Md. Asad Iqbal Chowdhury

    (Department of Economics and Banking, IIUC, Chittagong, Bangladesh)

  • Mahbubur Rahaman

    (Department of Business Administration, Adjunct Faculty (Finance), IIUC, Chittagong, Bangladesh)

Abstract

This study aims to examine the weak form efficiency of Dhaka Stock Exchange (DSE) using random walk model of EMH based on daily return series. The study applies both non-parametric [Kolmogorov-Smirnov test with Lilliefors coefficient, run test] and parametric test [autocorrelation test, unit root test and variance ratio test] on DSE general index, DSE broad index and DSE30 index ranging from June 1, 2004, to March 18, 2018. The results of the tests reject the null hypothesis of randomness. On the other hand, the result of the run test shows that share prices of DSE30 index follow the random walk. The return series of DSE broad index show some signs in favour of randomness by autocorrelation test while the returns of DSE general index support the efficiency concerning variance ratio test under both homoscedastic and heteroskedastic assumptions. The overall results of the study show inefficiency of DSE in the weak form which means the investor has a chance to make an abnormal profit predicting the historical data. This study also provides valuable insight to the shareholders, investors, the board of directors and regulatory bodies.

Suggested Citation

  • Masud Pervez & Md. Harun Ur Rashid & Md. Asad Iqbal Chowdhury & Mahbubur Rahaman, 2018. "Predicting the Stock Market Efficiency in Weak Form: A Study on Dhaka Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 8(5), pages 88-95.
    • Handle: RePEc:eco:journ1:2018-05-14
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    References listed on IDEAS

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    Cited by:

    1. Awaz Mohamed Saleem & Hazheen Mardan Mustafa & Zeravan Abdulmuhsen Asaad & Amjad Saber Al-Delawi, 2023. "Regional Stock Market Efficiency at Weak Form after the Covid-19 Vaccination Approval," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 63-70, November.
    2. Md. Harun Ur Rashid & Shah Asadullah Mohd. Zobair & Md. Asad Iqbal Chowdhury & Azharul Islam, 2020. "Corporate governance and banks’ productivity: evidence from the banking industry in Bangladesh," Business Research, Springer;German Academic Association for Business Research, vol. 13(2), pages 615-637, July.
    3. Riyanka Baral & Debasis Patnaik, 2023. "Bank efficiency and governance: Evidence from Indian banking," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(3), pages 957-985, September.
    4. Mahamuda Firoj & Nair Sultana & Sharmina Khanom & Md Harun Ur Rashid & Abeda Sultana, 2023. "Pollution haven hypothesis and the environmental Kuznets curve of Bangladesh: an empirical investigation," Asia-Pacific Journal of Regional Science, Springer, vol. 7(1), pages 197-227, March.
    5. Erdas Mehmet Levent, 2019. "Validity of Weak-Form Market Efficiency in Central and Eastern European Countries (CEECs): Evidence from Linear and Nonlinear Unit Root Tests," Review of Economic Perspectives, Sciendo, vol. 19(4), pages 399-428, December.

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    More about this item

    Keywords

    Stock market; Weak form efficiency; DSE; EMH.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G2 - Financial Economics - - Financial Institutions and Services

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