Do the International Stock Indices reflect all available market information? A weak form efficiency analysis

Vardavaki, Anastasia; Mylonakis, John
September 2009
Leadership & Organizational Management Journal;2009, Vol. 2009 Issue 3, p95
Academic Journal
The scope of this paper is to examine the four main international stock market indices, in order to test for the existence of weak form efficiency in the real world and if stock prices follow a random walk process. According to the weak form efficiency, current prices reflect all the information which is incorporated in past prices. If the random walk hypothesis holds, the efficient market hypothesis must hold with respect to past returns. Results show that as for the daily ln-returns they tend to be stationary and not normally distributed. There is some small degree of serial correlation that is statistically significant. Returns are not identically distributed so we can claim that index prices do not follow a random walk process. As for monthly data the ln-returns are not normally distributed and tend to be stationary but they are not serially correlated. They are independent and so they are a random sequence. Monthly returns seem identically distributed index prices follow a random walk process, consistent with the weak form efficiency hypothesis.


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