Test of Weak Form of Efficiency in Emerging Markets: A South Asian Evidence

Abstract

This study examines the weak form of efficiency of three South Asian markets named as Dhaka Stock Exchange (DSE), Bombay Stock Exchange (BSE) and Karachi Stock Exchange (KSE) for a period between January 2000 to June 2010. Data used in the study is monthly closing values of the indices of the said exchanges. The study uses autocorrelation test, unit root tests, co-integration test and Granger causality test to examine the efficiency of the markets. Empirical result reveals that the returns do not follow normal distribution and the distributions are leptokurtic. Autocorrelation and unit root tests imply that the data series are stationary. Johansen co-integration test indicates that there is common stochastic trend shared by the markets. Granger causality test implies that the knowledge of the past return behavior in one market is unlikely to improve forecasts of returns of another market with some exceptions. So tests result implies that the markets are not weak form of efficient.