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Stock Market Efficiency in Nepal: A Variance Ratio Test

Author

Listed:
  • Jeetendra Dangol, Ph.D.

    (School of Management, Tribhuvan University)

Abstract

The paper examines random-walk behaviour and weak-form market efficiency on daily and weekly market returns of All Share Price Index and nine sectoral indices in the Nepal Stock Exchange (NEPSE) using Lo and MacKinlay (1988) variance-ratio tests and corrected data as suggested by Miller et al. (1994). The study finds that the random-walk hypothesis is strongly rejected for weekly indices of the observed and corrected returns. It shows that market participants have opportunities to predict future price and earn abnormal returns from the Nepalese stock market. Whereas, overall and development banking sectors support the random-walk hypothesis in daily observed and corrected returns. It indicates that technical analysis may not be fruitful to earn excess returns in overall and development banking sectors.

Suggested Citation

  • Jeetendra Dangol, Ph.D., 2016. "Stock Market Efficiency in Nepal: A Variance Ratio Test," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 28(2), pages 61-74, October.
    • Handle: RePEc:nrb:journl:v:28:y:2016:i:2:p:61
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    References listed on IDEAS

    as
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    3. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
    4. Jegadeesh, Narasimhan, 1990. "Evidence of Predictable Behavior of Security Returns," Journal of Finance, American Finance Association, vol. 45(3), pages 881-898, July.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Market efficiency; Random-walk; Variance ratio;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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