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Weak Form Efficiency Test of Dse

In: Business and Management

Submitted By TA5July2012
Words 7750
Pages 31
Weak- Form Market Efficiency of Dhaka Stock Exchange (DSE),

Economics & Finance,
Regional School of Business,
Faculty of Law and Management,
La-Trobe University, Bendigo,
VIC 3550, Australia.;

PhD Student
School of Commerce and Marketing
Faculty of Arts, Business, Informatics and Education
Central Queensland University, Australia

Weak Form Market Efficiency of Dhaka Stock Exchange (DSE),

This paper examines the weak-form efficiency in Dhaka Stock Exchange (DSE) of
Bangladesh adjusting for thin trading problem. Both non-parametric tests and parametric tests are used. The data sets consist of daily DSE General Index (DSE-GEN) and DSE 20
Index for the period ranging from January 1, 2002 to December 31, 2007. The results of the study reveal that DSE return series are not normally distributed. Both the return series are stationary and do not follow a random walk. Overall, the study rejects the weak form efficiency of DSE.

Key words: Efficient Market Hypothesis; Dhaka Stock Exchange; Random Walk Model; Weak
Form of Efficiency; Return autocorrelation.

JEL classification:

G14, N25, G 34

Weak Form Market Efficiency of Dhaka Stock Exchange (DSE),

1. Introduction
The theory of efficient market hypothesis (EMH) proposed by Fama (1965) was a ‘water shed event’ in the capital market research. Fama (1970) defined a market as being efficient if prices fully reflect all available information. In the broadest terms of EMH, there are three forms of market efficiencies. Firstly, in weak form efficiency, security prices fully reflect only the history of prices or returns themselves. Secondly, in semi-strong form efficiency, security prices…...

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