IDEAS home Printed from https://ideas.repec.org/a/ist/iujepr/v9y2022i2p315-329.html
   My bibliography  Save this article

Testing the Weak-Form Market Efficiency for the Islamic Market Indices: Evidence from Fourier Wavelet ADF Unit Root Test

Author

Listed:
  • Salih Ulev

    (Sakarya University, Faculty of Political Sciences, Sakarya, Turkiye)

  • Mervan Selçuk

    (Sakarya University, Faculty of Political Sciences, Sakarya, Turkiye)

Abstract

Islamic stock markets and indices are a newly developing field and an essential phenomenon in the global financial system. Islamic stocks are different from conventional counterparts because they filter firms that do not comply with Shari'ah principles. The efficiency of stock markets is essential for all countries in regard to resource allocation and sustainable economic development. Therefore, many hypotheses have been developed to investigate market efficiency. The first and one of the most important of these hypotheses is the efficient market hypothesis. This paper aims to investigate the weak-form market efficiency of Islamic stock markets. For this purpose, we used 13 indices data in Dow Jones and S&P between 2011 and 2021, employing the Fourier Wavelet ADF (FWADF) Unit Root Test. The FWADF test enabled us to consider structural breaks with an unknown number, time, and form. The studies examining EMH and Islamic indices did not consider smooth changes and frequency information in wavelet-based unit root tests. Therefore, it is possible that the information for indices may have been incomplete. Adopting FWADF, our study contributes to the literature in that it uses all information about the stock market indices data in the analysis. The findings show that six Islamic market indices have unit roots, but seven indices are stationary. This means that all emerging market indices analyzed have market efficiency, but developed country indices do not. The results provide further understanding for investors and financial analysists enabling them to assess their decisions efficiently in constructing investment portfolios.

Suggested Citation

  • Salih Ulev & Mervan Selçuk, 2022. "Testing the Weak-Form Market Efficiency for the Islamic Market Indices: Evidence from Fourier Wavelet ADF Unit Root Test," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 9(2), pages 315-329, July.
    • Handle: RePEc:ist:iujepr:v:9:y:2022:i:2:p:315-329
    DOI: 10.26650/JEPR1111585
    as

    Download full text from publisher

    File URL: https://cdn.istanbul.edu.tr/file/JTA6CLJ8T5/B4A2E48C74624BC6BC705509BCFCA268
    Download Restriction: no
    File URL: https://iupress.istanbul.edu.tr/en/journal/jepr/article/testing-the-weak-form-market-efficiency-for-the-islamic-market-indices-evidence-from-fourier-wavelet-adf-unit-root-test
    Download Restriction: no
    File URL: https://libkey.io/10.26650/JEPR1111585?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fan, Yanqin & Gençay, Ramazan, 2010. "Unit Root Tests With Wavelets," Econometric Theory, Cambridge University Press, vol. 26(5), pages 1305-1331, October.
    2. Ainul Islam & Mohammed Khaled, 2005. "Tests of Weak‐Form Efficiency of the Dhaka Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1613-1624, September.
    3. Narayan, Paresh Kumar, 2008. "Do shocks to G7 stock prices have a permanent effect?," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 77(4), pages 369-373.
    4. Gençay, Ramazan & Gençay, Ramazan & Selçuk, Faruk & Whitcher, Brandon J., 2001. "An Introduction to Wavelets and Other Filtering Methods in Finance and Economics," Elsevier Monographs, Elsevier, edition 1, number 9780122796708.
    5. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    6. Buguk, Cumhur & Wade Brorsen, B., 2003. "Testing weak-form market efficiency: Evidence from the Istanbul Stock Exchange," International Review of Financial Analysis, Elsevier, vol. 12(5), pages 579-590.
    7. Ainul Islam & Mohammed Khaled, 2005. "Tests of Weak-Form Efficiency of the Dhaka Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1613-1624.
    8. Yazgan, M. Ege & Özkan, Harun, 2015. "Detecting structural changes using wavelets," Finance Research Letters, Elsevier, vol. 12(C), pages 23-37.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Alqaralleh, Huthaifa & Canepa, Alessandra & Chini, Zanetti, 2021. "Financial Contagion During the Covid-19 Pandemic: A Wavelet-Copula-GARCH Approach," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202110, University of Turin.
    3. Bariviera, Aurelio F. & Font-Ferrer, Alejandro & Sorrosal-Forradellas, M. Teresa & Rosso, Osvaldo A., 2019. "An information theory perspective on the informational efficiency of gold price," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    4. Khan, Walayet & Vieito, João Paulo, 2012. "Stock exchange mergers and weak form of market efficiency: The case of Euronext Lisbon," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 173-189.
    5. Ben Moews & J. Michael Herrmann & Gbenga Ibikunle, 2018. "Lagged correlation-based deep learning for directional trend change prediction in financial time series," Papers 1811.11287, arXiv.org, revised Nov 2018.
    6. Pinar OKAN GOKTEN & Furkan BASER & Soner GOKTEN, 2017. "Using fuzzy c-means clustering algorithm in financial health scoring," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 15(147), pages 385-385.
    7. Gozbasi, Onur & Kucukkaplan, Ilhan & Nazlioglu, Saban, 2014. "Re-examining the Turkish stock market efficiency: Evidence from nonlinear unit root tests," Economic Modelling, Elsevier, vol. 38(C), pages 381-384.
    8. Krzysztof Kompa & Aleksandra Matuszewska-Janica, 2009. "Efficiency of the Warsaw Stock Exchange: Analysis of Selected Properties," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(1), pages 59-70, February.
    9. Caraiani, Petre, 2015. "Estimating DSGE models across time and frequency," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 33-49.
    10. Narayan, Paresh Kumar & Narayan, Seema & Mishra, Sagarika, 2013. "Has the structural break slowed down growth rates of stock markets?," Economic Modelling, Elsevier, vol. 30(C), pages 595-601.
    11. Eroğlu, Burak Alparslan, 2019. "Wavelet variance ratio cointegration test and wavestrapping," Journal of Multivariate Analysis, Elsevier, vol. 171(C), pages 298-319.
    12. Francesco Guidi & Rakesh Gupta & Suneel Maheshwari, 2011. "Weak-form Market Efficiency and Calendar Anomalies for Eastern Europe Equity Markets," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 10(3), pages 337-389, December.
    13. Halime Temel Nalın & Sevinç Güler, 2015. "Testing The Random Walk Hypothesis: An Application in the BRIC Countries and Turkey," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 18(55), pages 129-148, March.
    14. Kaihua Deng & Chang-Jin Kim, 2015. "Predicting Stock Returns — The Information Content Of Predictors Across Horizons," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 10(02), pages 1-27, December.
    15. Nartea, Gilbert V. & Valera, Harold Glenn A. & Valera, Maria Luisa G., 2021. "Mean reversion in Asia-Pacific stock prices: New evidence from quantile unit root tests," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 214-230.
    16. Stelios Bekiros & Jose Arreola Hernandez & Gazi Salah Uddin & Ahmed Taneem Muzaffar, 2020. "On the predictability of crude oil market: A hybrid multiscale wavelet approach," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(4), pages 599-614, July.
    17. Hasan A?an Karaduman, 2016. "Stylized Facts And Weak-Form Efficiency In Turkish Stock Market," Proceedings of International Academic Conferences 4006651, International Institute of Social and Economic Sciences.
    18. Juan Benjamín Duarte Duarte & Juan Manuel Mascareñas Pérez-Iñigo, 2014. "¿Han sido los mercados bursátiles eficientes informacionalmente?," Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, June.
    19. Karuppiah, Jeyanthi & Los, Cornelis A., 2005. "Wavelet multiresolution analysis of high-frequency Asian FX rates, Summer 1997," International Review of Financial Analysis, Elsevier, vol. 14(2), pages 211-246.
    20. Wang, Juan & Zhang, Dongxiang & Zhang, Jian, 2015. "Mean reversion in stock prices of seven Asian stock markets: Unit root test and stationary test with Fourier functions," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 157-164.

    More about this item

    Keywords

    Islamic market indices; emerging markets; market efficiency; fourier wavelet unit root test; Dow Jones; S&P JEL Classification : G11 ; C50 ; Z12;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ist:iujepr:v:9:y:2022:i:2:p:315-329. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ertugrul YASAR The email address of this maintainer does not seem to be valid anymore. Please ask Ertugrul YASAR to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/ifisttr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.