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Empirical Test of the Strong Form Efficiency of the Warsaw Stock Exchange: The Analysis of WIG 20 Index Shares

Author

Listed:
  • Tomasz Potocki

    (University of Rzeszow)

  • Tomasz Swist

    (University of Warsaw)

Abstract

There are three forms of information efficiency of a market that may be verified. Testing weak form efficiency provides information on reflection of the historical values of share prices. Most research on the subject proves the validity of the hypothesis that the technical analysis does not allow the achievement of abnormal rates of return. In the case of the semi-strong form the empirical research does not provide explicit answers; however, most research weighs in favour of the hypothesis of the semi-strong form of market informational efficiency. According to the hypothesis, it is impossible to achieve above-average profits in the long run, based on technical and fundamental analysis. The strong form efficiency represents another type of market informational efficiency, which is most difficult to verify, as it requires the use of non-public information. The purpose of the following article is to verify the strong form of market informational efficiency, based on the assumption that the institutions issuing recommendations have access to information inaccessible to the community of investors. The research sample consists of 3,270 recommendations produced between 1 January 2005 and 31 March 2010 by 63 financial entities with reference to companies making up the WIG 20 index. In most cases the obtained results provide evidence for the hypothesis that the strong form efficiency is characteristic of the WIG 20 index shares listed on the Warsaw Stock Exchange.

Suggested Citation

  • Tomasz Potocki & Tomasz Swist, 2012. "Empirical Test of the Strong Form Efficiency of the Warsaw Stock Exchange: The Analysis of WIG 20 Index Shares," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 10(2), pages 155-172.
    • Handle: RePEc:seb:journl:v:10:y:2012:i:2:p:155-172
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    References listed on IDEAS

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    1. LeRoy, Stephen F, 1976. "Efficient Capital Markets: Comment," Journal of Finance, American Finance Association, vol. 31(1), pages 139-141, March.
    2. Keown, Arthur J & Pinkerton, John M, 1981. "Merger Announcements and Insider Trading Activity: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 36(4), pages 855-869, September.
    3. Penman, Stephen H, 1982. "Insider Trading and the Dissemination of Firms' Forecast Information," The Journal of Business, University of Chicago Press, vol. 55(4), pages 479-503, October.
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    Cited by:

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    2. Dhanraj Sharma, 2016. "Fama Decomposition Analysis of Selected Companies of Bombay Stock Exchange in India," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 5(3), pages 1-1.
    3. Daouda Lawa Tan Toe & Mamadou Toe & Tibi Didier Zoungrana, 2023. "Investigating the weak and semi-strong forms of Informational Efficiency on the West African Economic and Monetary Union’s Stock Exchange (BRVM) through returns predictability tests," SN Business & Economics, Springer, vol. 3(9), pages 1-27, September.

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    More about this item

    Keywords

    Capital Market; Strong Form Informational Efficiency; Abnormal Rate of Return; WIG 20 Index;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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