• Random walks in frontier stock markets

    Author(s):

    Ryan McKerrow


    ryanmckerrow@gmail.com
    2024-08-01 08:31:01

    23 Downloads 46 Views

    Abstract

    The efficient markets hypothesis (EMH) posits that current stock prices (returns) are uncorrelated with past stock prices (returns). This means that a price change occurring today must be solely the product of today’s news and thus independent of any prior news. With daily news being unpredictable, prices follow a random walk. The result is that speculative investors will be unable to profit from the exploitation of exclusive market knowledge. This paper tests the validity of the random walk model and, by extension, the weak form efficiency of the frontier markets of Botswana, Cote d’Ivoire, Ghana, Mauritius and Namibia. The study fills an existing gap created by a lack of empirical investigation into the efficiency of these markets in recent years. Data on broad-based equity indices are applied and the naïve random walk, the runs test and the multiple variance ratio test results demonstrate varying levels of efficiency when compared with the conclusions reached by existing studies.

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