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Share market efficiency: tests using daily data for Australia and New Zealand

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  • Nicolaas Groenewold

Abstract

This paper reports the results of various tests of the efficient markets hypothesis (EMH) using daily observations on the Statex Actuaries' Price Index for Australia and the NZSE-40 Index for New Zealand for the period 1975-92. The weak form of the EMH is examined by testing the log of the price for each country for stationarity and by examining the autocorrelation structure of returns. The autocorrelations provide evidence of return predictability, although the stationarity results are consistent with the weak form of the EMH. Results are similar across countries. Semi-strong efficiency is addressed by testing for cointegration between Australian and New Zealand share prices and for Granger causality between the two countries' rates of return. Robustness of the results is assessed in various ways. First, similar tests are carried out for both weekly and monthly data. Second, similar tests are conducted for various subsamples of the original sample and by trimming outlying observations. Third, the expected euilibrium return is modelled using interest rates as an alternative to the common assumption of constancy. Finally, several alternative indexes are used: the Statex Actuaries' Accumulation Index and the All Ordinaries Price and Accumulation Indexes in place of the Statex Actuaries' Price Index and the NZ Gross Index in place of the NZSE-40

Suggested Citation

  • Nicolaas Groenewold, 1997. "Share market efficiency: tests using daily data for Australia and New Zealand," Applied Financial Economics, Taylor & Francis Journals, vol. 7(6), pages 645-657.
    • Handle: RePEc:taf:apfiec:v:7:y:1997:i:6:p:645-657
    DOI: 10.1080/758533856
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    Cited by:

    1. Angelovska, Julijana, 2018. "Testing Weak Form Of Stock Market Efficiency At The Macedonian Stock Exchange," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 9(2), pages 133-144.
    2. Ume Habibah & Niaz Hussain Ghumro & Manzoor Ali Mirani, 2017. "Testing the Random Walk Hypothesis: A Case of Pakistan," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(7), pages 551-564, July.
    3. Kian-Ping Lim & Robert Brooks, 2009. "On the validity of conventional statistical tests given evidence of nonsynchronous trading and nonlinear dynamics in returns generating process: a further note," Applied Economics Letters, Taylor & Francis Journals, vol. 16(6), pages 649-652.
    4. Aristeidis G. Samitas & Dimitris F. Kenourgios, 2007. "Macroeconomic factors' influence on 'new' European countries' stock returns: the case of four transition economies," International Journal of Financial Services Management, Inderscience Enterprises Ltd, vol. 2(1/2), pages 34-49.
    5. Asma Mobarek & A. Sabur Mollah & Rafiqul Bhuyan, 2008. "Market Efficiency in Emerging Stock Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(1), pages 17-41, January.
    6. Senarathne Chamil W., 2020. "Are Religious Believers Irrational: A Direct Test from an Efficient Market Hypothesis," Financial Sciences. Nauki o Finansach, Sciendo, vol. 25(1), pages 35-53, March.
    7. Müge Özdemir, 2022. "Analyzing the Efficient Market Hypothesis with the Structural Break and Nonlinear Unit Root Tests: An Application on Borsa Istanbul," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(37), pages 257-282, December.
    8. Akber, Ushna & Muhammad, Nabeel, 2013. "Is Pakistan Stock Market moving towards Weak-form efficiency? Evidence from the Karachi Stock Exchange and the Random Walk Nature of free-float of shares of KSE 30 Index," MPRA Paper 49128, University Library of Munich, Germany.
    9. Abdul Haque & Hung-Chun Liu & Fakhar-Un-Nisa, 2011. "Testing the Weak Form Efficiency of Pakistani Stock Market (2000 2010)," International Journal of Economics and Financial Issues, Econjournals, vol. 1(4), pages 153-162.
    10. 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.
    11. Xiaoming Li & Jian Xu, 2002. "A note on New Zealand Stock Market efficiency," Applied Economics Letters, Taylor & Francis Journals, vol. 9(13), pages 879-883.
    12. Stephen Keef & Melvin Roush, 2007. "Daily weather effects on the returns of Australian stock indices," Applied Financial Economics, Taylor & Francis Journals, vol. 17(3), pages 173-184.
    13. 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.
    14. Truong, Cameron, 2010. "Post earnings announcement drift and the roles of drift-enhanced factors in New Zealand," Pacific-Basin Finance Journal, Elsevier, vol. 18(2), pages 139-157, April.
    15. Nicolaas Groenewold & Mohamed Ariff, 1998. "The Effects of De-Regulation on Share-Market Efficiency in the Asia-Pacific," International Economic Journal, Taylor & Francis Journals, vol. 12(4), pages 23-47.

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