The Weak-Form Efficiency of The GCC Markets

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An Empirical Analysis on The Weak-Form Efficiency of The GCC Markets Applying Selected Statistical Tests Rengasamy Elango, Mohammed Ibrahim Hussein This paper tests for market efficiency across the seven stock markets in the GCC (Gulf Co-operation Council) countries. The GCC countries, of late, have been striving to strengthen their capital markets by introducing various innovative changes in relation to listing, regulatory, trading and settlement norms in order to improve transparency and informational efficiency. Using daily indices of the above markets between October 2001 and October 2006 and Kolmogorov –Smirnov test, we find that all the above seven markets reject the null hypothesis that the returns follow a normal distribution.…show more content…
Even though deviations will occur and there will be periods when securities are over or undervalued, these anomalies are expected to disappear as quickly as they appeared, thus making it almost impossible to profit from them consistently. The weak form of market efficiency theorizes that the current price does not reflect fair value and is only a reflection of past prices. It further states that the future price cannot be determined using past or current prices. The semi-strong form of market efficiency theorizes that the current price reflects all readily available information. This information might include annual reports, annual filings, earnings reports, announcements, and other relevant information that can be readily gathered. The strong form efficiency states that the stock prices reflect all information from historical, public and private sources, so that no investor can realize abnormal rate of return. Though theoretical literature talks of market efficiency, in practical terms the market is not perfectly efficient. Anomalies do exist and there are investors and traders who outperform the market. So, the EMH has very important implications for both investors and authorities that regulate and control the market. 2 Electronic copy available at: http://ssrn.com/abstract=1026569 The rest of the paper is organized as follows: Section II, gives the theoretical background of the Random Walk
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