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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

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  • Akber, Ushna
  • Muhammad, Nabeel

Abstract

In this study, we have attempted to seek evidence for weak-form of market efficiency for KSE 100 Index. Index returns have been studied from 1st January, 1992 to 30th April, 2013. For further analysis, return series has been divided into these groups: 1992-2012, 1992-1994, 1995-1997, 1998-2000, 2001-2003, 2004-2006, 2007-2009, 2010-2012 and 2013. The paper has made use of both Non-Parametric tests (Kolmogrov-Smirnov goodness of fitness test, Runs test and Phillips-Perron test) and Parametric tests (Auto-correlation test, Box-Pierce (Q) statistic test, Ljung and Box (Q) Statistic test, Augmented Dickey-fuller test, Dickey-fuller GLS test, Jarque-Bera test, Kwiatkowski, Phillips, Schmidt and Shin test, Auto-regression and ARIMA model). For further analysis, Runs test has also been run on 20 companies return series for comparison purpose with the results of index return series. In addition, from KSE 30 Index, 20 companies return series based on the free-float of shares have also been analyzed through Runs test to check if increase in numbers of floating shares does increase the randomness in return series or not. To our knowledge, this paper is the first one on KSE 100 Index to study the overall time frame of return series of KSE 100 Index of 22 years with the several random walk and weak-form efficiency tests to ensure the consistency of results; and to compare the results of runs test of index return series with the results of runs test on companies return series from KSE 100 and KSE 30 Indexes. Overall KSE 100 Index has found to be weak-form inefficient, but the last 4 years have shown some signs of efficiency. Companies return series from KSE 30 Index are found to be more random than companies return series from KSE100 Index.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:49128
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    2. Emmanuel O. Nwosu & Anthony Orji & Ogomegbunam Anagwu, 2013. "African Emerging Equity Markets Re-examined: Testing the Weak Form Efficiency Theory," African Development Review, African Development Bank, vol. 25(4), pages 485-498.
    3. Noman Arshed & Muhammad Shahid Hassan & Kenneth A Grant & Osama Aziz, 2019. "Are Karachi Stock Exchange Firms Investment Promoting? - Evidence of Efficient Market Hypothesis Using Panel Cointegration," Asian Development Policy Review, Asian Economic and Social Society, vol. 7(2), pages 52-65, June.
    4. Muhammad Kashif & Rana Palwishah & Rizwan Raheem Ahmed & Jolita Vveinhardt & Dalia Streimikiene, 2021. "Do investors herd? An examination of Pakistan stock exchange," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2090-2105, April.

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    More about this item

    Keywords

    Efficient Market Hypothesis; Random Walk; Random Walk and Weak-form Efficiency Tests; Free-float of shares; KSE 100 Index and KSE 30 Index.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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