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Stock Market Prices Follow the Random Walks: Evidence from the Efficiency of Karachi Stock Exchange
European Journal of Economics, Finance and Administrative Sciences (2012)
  • Mian Saqib Mehmood, University of Gujrat
  • Asif Mehmood
  • Bahaudin G. Mujtaba
Abstract
This study describes the behavior of the Karachi Stock Exchange (KSE) regarding the movement of share prices of the companies listed at KSE-100 Index as well as how the share price at KSE follows Random Walk. Moreover, this study pinpoints that the prices of the securities are co-integrated and cannot always be predicted. However, the historical data of KSE-100 Index from January 2, 2001 to November 15, 2011 was collected which contains 2672 observations of the closing share price index of the top 100 companies listed with KSE. Simple unit root – Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) – tests and Johansen Co-integration test was used which discusses the efficiency of the market. Empirical findings of this study suggest that KSE-100 Index follows the Random Walk Hypothesis (RWH) and Efficient Market Hypothesis (EMH). However, KSE is an efficient financial market that can adjust to any new information very quickly and efficiently and the prices of the securities listed for trading at KSE-100 Index cannot be predicted. Hence, KSE cannot be beaten to gain any abnormal return. This research will provide a better understanding about the behavior of KSE as it applies advance econometric techniques which tends to produce more reliable results.
Keywords
  • Random Walk Hypothesis (RWH),
  • Efficiency Market Hypothesis (EMH),
  • Unit Root Test,
  • Co-integration Test,
  • KSE,
  • Pakistan.
Publication Date
Spring August 5, 2012
Citation Information
Mian Saqib Mehmood, Asif Mehmood and Bahaudin G. Mujtaba. "Stock Market Prices Follow the Random Walks: Evidence from the Efficiency of Karachi Stock Exchange" European Journal of Economics, Finance and Administrative Sciences Vol. 51 Iss. 1 (2012)
Available at: http://works.bepress.com/miansaqib_mehmood/1/