Testing the Weak Form Efficiency of Islamabad Stock Exchange (ISE)

Abstract

The characteristics of stock prices reflect the all available information in market. This study explored the weak form efficiency of Islamabad Stock Exchange (ISE). In this research paper, we have also revealed the behavior of stocks prices traded in Islamabad Stock Exchange, and how it behaves in different unusual events. Stock markets are the major contributor to economy. To test the weak form efficiency of Islamabad Stock exchange, we have tested Efficient Market Hypothesis. EMH is a method to measure the stock prices trends in the market. Efficient market hypothesis also helps for making the right investment decisions. From last two decades EMH has obtained much importance in the field of finance. So it has attracted many researchers to explore the anomalous behavior of efficient stock market. Efficient market hypothesis has three main categories: 1. Weak form 2. Semi-strong form 3. Strong form. We will focus only weak form of market efficiency in ISE. Focus of the study is to analyze the weak form of ISE-10 in the stock market. For this purpose we have used different statistical techniques for analyzing the data that is collected from the official website of ISE. Data will be in the form of weekly ISE-10 share index. Time period of data is From January, 2013 to December, 2013. To render this study to the conclusion, we have use the famous tests of statistics such as run test and ADF test to check the weak form of ISE. We have also focused on the random walk behavior of stock market of Islamabad. Because the price movement in random form, that investor could not predict the stock prices due to weak form. In weak form, no investor can get abnormal return in stock market. There is very large debate on stock activities that would be explode further.

Keywords: EMH, Islamabad Stock Exchange, Market efficiency, Test of weak form efficiency