Testing the weak-form efficiency of Arab stock markets after the COVID-19 pandemic
-
DOIhttp://dx.doi.org/10.21511/imfi.21(2).2024.31
-
Article InfoVolume 21 2024, Issue #2, pp. 381-388
- 164 Views
-
47 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Weak-form efficiency means that stock prices should reflect all historical information and follow a random walk. This study examines the effect of the COVID-19 pandemic on the stock market weak-form efficiency of Arab countries, namely, Jordan, Lebanon, Kuwait, Morocco, Oman, Palestine, Bahrain, Egypt, Iraq, Qatar, Saudi Arabia, the United Arab Emirates, Syria, Tunisia, and Sudan. Daily data from July 1st, 2021 to November 12th, 2022 (370 trading days) are used to cover the period after starting the pandemic. The variance ratio and the runs test are used to test return predictability. The results show that the variance ratio values of Boursa Kuwait, the Egyptian Exchange, Tadawul, and the Amman Stock Exchange are statistically significant, indicating that their returns are unpredictable. In specific, the indices of these stock markets follow a random walk, and their price changes are independent. This is evidence that these stock markets are efficient at a weak level. In contrast, the insignificant values of the variance ratio indicate that returns are predictable in other Arab stock exchanges after the pandemic era. The findings of the Egyptian Exchange, Tadawul, and the Amman Stock Exchange are confirmed using the run test of weak-form efficiency. It reveals that the indices of these stock exchanges follow a random walk, while the indices of other Arab stock markets do not.
- Keywords
-
JEL Classification (Paper profile tab)G10, G14, G19
-
References21
-
Tables5
-
Figures0
-
- Table 1. Major statistics of Arab stock exchanges
- Table 2. Descriptive statistics of index returns for Arab countries
- Table 3. Stationarity test
- Table 4. Variance ratio test
- Table 5. Runs test
-
- Alzyadat, J. A., & Asfoura, E. (2021). The Effect of COVID-19 Pandemic on Stock Market: An Empirical Study in Saudi Arabia. Journal of Asian Finance Economics and Business, 8(5), 913-921.
- Bradley, J. V. (1968). Distribution-Free Statistical Tests (Chapter 12).
- Charfeddine, L., & Khediri, K. B. (2016). Time varying market efficiency of the GCC stock markets. Physica A: Statistical Mechanics and its Applications, 444, 87-504.
- Charfeddine, L., Khediri, K. B., Aye, G. C., & Gupta, R. (2018). Time-varying efficiency of developed and emerging bond markets: evidence from long-spans of historical data. Physica A: Statistical Mechanics and its Applications, 505, 632-647.
- Charles, A., Darn´e, O., & Kim, J. H. (2015). Will precious metals shine? A market efficiency perspective. International Review of Financial Analysis, 41, 284-291.
- Driss, A., & Garcin, M. (2021). Efficiency of the financial markets during the COVID-19 crisis: Time-varying parameters of fractional stable dynamics. Physica A: Statistical Mechanics and its Applications, 609, 1-17.
- Fama, Eugene F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25(2), 383-417.
- Fama, Eugene F. (2021). Efficient capital markets a review of theory and empirical work. The Fama Portfolio, 76-121.
- Ferreira, P., Pereira, E., Tilfani, O., & El Boukfaoui, M. (2021). How Does COVID-19 Impact the Efficiency of the Chinese Stock Market? Financial Management During Economic Downturn and Recovery, 17.
- Khediri, K. B., & Charfeddine, L. (2015). Evolving efficiency of spot and futures energy markets: a rolling sample approach. Journal of Behavioral and Experimental Finance, 6, 67-79.
- Kim, J. H., Shamsuddin, A., & Lim, K.-P. (2011). Stock return predictability and the adaptive markets hypothesis: evidence from century-long U.S. Data. Journal of Empirical Finance, 18, 868-879.
- Lalwani, V., & Meshram, V. V. (2020). Stock market efficiency in the time of COVID-19: evidence from industry stock returns. International Journal of Accounting & Finance Review, 5(2), 40-44.
- Lim, K.-P., Luo, W., & Kim, J. H. (2013). Are US stock index returns predictable? Evidence from automatic autocorrelation-based tests. Applied Economics, 45(8), 953-962.
- Lo, Andrew, W., & Craig MacKinlay, A. (1988). Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test. The Review of Financial Studies, 1(1), 41-66.
- Ozkan, O. (2021). Impact of COVID-19 on stock market efficiency: Evidence from developed countries. Research in International Business and Finance, 58, 1-10.
- Rahman, L., Lee, D., & Shamsuddin, A. (2017). Time-varying return predictability in South Asian equity markets. International Review of Economics & Finance, 48, 179-200.
- Rodriguez, E., Cornejo, M. A., Femat, R., & Ramirez, J. A. (2014). US stock market efficiency over weekly, monthly, quarterly and yearly time scales. Physica A: Statistical Mechanics and its Applications, 413, 554-564.
- Singh, B., Dhall, R., Narang, S., & Rawat, S. (2020). The Outbreak of COVID-19 and Stock Market Responses: An Event Study and Panel Data Analysis for G-20 Countries. Global Business Review, 1-26.
- Urquhart, A., & Hudson, R., (2013). Efficient or adaptive markets? Evidence from major stock markets using very long run historic data. International Review of Financial Analysis, 28, 30-142.
- Vasileiou, E. (2020). Efficient markets hypothesis in the time of COVID-19. Review of Economic Analysis: REA, 12(2), 45-63.
- Verheyden, T., De Moor, L., & Van den Bossche, F. (2015). Towards a new framework on efficient markets. Research in International Business and Finance, 34, 294-308.