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Efficient Market Hypothesis in South Africa: Evidence from a threshold autoregressive (TAR) model

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  • Van Heerden, Dorathea
  • Rodrigues, Jose
  • Hockly, Dale
  • Lambert, Bongani
  • Taljard, Tjaart
  • Phiri, Andrew

Abstract

This study deviates from the conventional use of a linear approach in testing for the efficiency market hypothesis (EMH) for the Johannesburg Stock Exchange (JSE) between the periods 2001:01 to 2013:07. By making use of a threshold autoregressive (TAR) model and corresponding asymmetric unit root tests, our study demonstrates how the stock market indexes evolve as highly persistent, nonlinear process and yet for a majority of the time series under observation, the formal unit root tests reject the hypothesis of stationarity among the variables. These results bridge two opposing contentions obtained from previous studies by concluding that while a number of stock prices under the JSE stock market may not evolve as pure unit root processes, the time series are, however, highly persistent to an extent of being able to be deemed as weak-form efficient.

Suggested Citation

  • Van Heerden, Dorathea & Rodrigues, Jose & Hockly, Dale & Lambert, Bongani & Taljard, Tjaart & Phiri, Andrew, 2013. "Efficient Market Hypothesis in South Africa: Evidence from a threshold autoregressive (TAR) model," MPRA Paper 50544, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:50544
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    Cited by:

    1. Olwetu Fusthane & Kapingura F M, 2017. "Weak Form Market Efficiency of the Johannesburg Stock Exchange: Pre, During and Post the 2008 Global Financial Crisis," Journal of Economics and Behavioral Studies, AMH International, vol. 9(5), pages 29-42.
    2. Kelikume, Ikechukwu & Evans, Olaniyi & Iyoha, Faith, 2020. "Efficient Market Hypothesis in the Presence of Market Imperfections: Evidence from Selected Stock Markets in Africa," MPRA Paper 118200, University Library of Munich, Germany.
    3. Misheck Mutize & Sean J. Gossel, 2019. "Sovereign Credit Rating Announcement Effects on Foreign Currency Denominated Bond and Equity Markets in Africa," Journal of African Business, Taylor & Francis Journals, vol. 20(1), pages 135-152, January.

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    More about this item

    Keywords

    Keywords: Efficient Market Hypothesis (EMH); Johannesburg stock Exchange (JSE); South Africa; Threshold Autoregressive (TAR) model; Unit Roots.;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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