An Emprical Analysis of Weak-Form Efficiency of Dar es Salaam Stock Exchange

Authors

  • Maximillian Michael Katabi
  • Gwahula Raphael (PhD)

Abstract

This study examines the empirical evidence for efficient market hypothesis in the Dar es SalaamStock Exchange (DSE). The daily closing stock prices of the market index (All share IndexDSEI) were used, covering the sample period from January 2009 to March 2015. All data were extracted from Dar Es Salaam Stock Exchange (DSE), excluding public holidays and nontrading days. To examine the weak-form efficiency hypothesis, the study used four different statistical tests: serial correlation test-The Ljung-Box test, Unit root tests, non-parametric runs test and the variance ratio test. The results of all four statistical tests employed showed that the daily returns series did not behave randomly for the sample period investigated and hence it was concluded that DSE is not a weak form efficient market. Inefficiency of the market (DSE) general implies that trading strategy such as the technical analysis can be valuable in the market taking into consideration of the other factors. The study recommended that other studies to be conducted using individual shares. This will help in understanding the efficiency of individual stocks as well as the possibility of applying some of trading strategy on individual shares

Author Biographies

Maximillian Michael Katabi

Assistant Lecturer at the Department of Accounting and Finance, Tumaini University Dar Es Salaam College(TUDARCo),Dar es Salaam, Tanzania

Gwahula Raphael (PhD)

Lecturer, Faculty of Business Management, Open University of Tanzania (OUT)

References

Abushammala,S. (2011)Testing the Weak form Efficiency of Palestine Exchange, International Journal of Economics and Finance, Vol. 3, No. 6,pp 244-252.

Alkhatibu,A. and Hrsher.M (2013) Testing the weak form market efficiency: Empirical from Palestine Exchange, Proceedings of 6th International Business and Social Sciences Research Conference, 3-4 January, 2013, Dubai.

Arnold,G.(2005). Corporate Financial Management (3rdedn),Pearson Education Ltd, Essex.

Asteriou, D. and Hall,S.(2007)Applied Econometrics, Palgrave Macmillan, New York.

Ayyppan.S, Nagarajan,S. and Prabhakaran,K. (2013) Empirical Analysis of Weak form efficiency evidence from National Stock Exchange of India Ltd, Beykent University Journal of Social Sciences, Vol 6, No.2, pp 125-137.

Awais,M., Irfan .M and Irfan, M. (2010) Investigating the weak form efficiency of emrging market using parametric tests: Evidence from Karachi Stock Market of Pakistan, Electronic Journal of Applied Statistical Analysis, Vol. 3, Issue 1, pp 52-64

Chaity,N. and Sharmin, S. (2012)‘ Efficiency Measures of Capital Market: A case of Dhaka Stock Exchange’. International Journal of Business and Management, Vol.7, No.1, pp.

-108.

Fama, E. (1965) ‘The Behaviour of Stock-Market Prices’, Journal of Business, Vol. 1, pp.34-

Fama, E. (1970) ‘Efficient Capital Markets: A Review of the Theory and Empirical Work’, Journal of Finance, Vol. 25, pp.383-417

Gujarati,D. (2004) Basic Econometrics, (4thedn), McGraw Hill, NewYork.

Haque.A , Chun Liu .H and Nisa un. F, (2011)Testing the weak form Efficiency of Pakistan

Stock Market, International Journal of Economics and Financial Issues, Vol.1, No.4, pp

-162.

Kumar,S.and Singh,M.(2013)‘Weak form of market efficiency: A study of selected Indian stock market indices’, International Journal of Advanced Research in Management and Social Sciences, Vol.2, No.1.

Lo,A.W.and Mackinlay,A.C.(1988)‘Stock market prices do not follow random walks: Evidence from a simple specification test’, The Review of Financial Studies, Vol.1, No.1,pp.41-66.

McKerrow,A.(2013) Random walks in frontier stock markets, Ghanaian Journal of Economics, Vol 1,pp 87-103.

Mollah,A. (2007)Testing weak form market efficiency in emerging market: Evidence from Botswana Stock Exchange.’ International Journal of Theoretical and Applied Finance,Vol.10,No.6.

Muthama,N and Mutothya , N. (2013) . ‘An Empirical investigation of the random walk Hypothesis of stock prices on the Nairobi Stock Exchange’, European Journal of Accounting Auditing and Finance Research, Vol 1, No.4, pp. 33-59.

Ndunguru ,P.C (2007) , Econometrics, (1st Edition), Research Information and Publication

Department, Mzumbe.

Ogege, S and Mojekwu, J (2013), Econometric Investigation of the random walk hypothesis in Nigerian stock market, Journal of Emerging issues in economics, Finance and Banking, Vol 1, No 5.pp 381-400.

Sania.S and Rizwan.M (2014) Testing weak form efficiency of capital markets: A case of Pakistan , International Journal of Research Studies in Management , Vol.3, No 1, pp 65-

Nisar,S and Hanif ,M. (2012)Testing Wea k Form of Efficient Market Hypothesis: Empirical Evidence from South-Asia, World Applied Sciences Journal, Vol. 17, No.4 pp 414-427.

Shaker ,A .T.M. (2013) ‘Testing the weak-form efficiency of the Finnish and Swedish stock markets’ , European Journal of Business and Social Science, Vol .2, N0. 9 ,pp 176-185.

Spiegel,M., Shiller,J. and Srinivasan,R(2000), Theory and Problems of Probability and Statistics (2ndedn), McGraw-Hill Companies, United States of America.

Srinivasan.P (2010) Testing weak form efficiency of Indian Stock Markets, APJRBM ,Vol.1,

Issue 2.

Sultan,K., Madah, N.A. and Khalid,A (2003) ‘ Comparison between Kuwait and Pakistan Stock Exchange: Testing Weak Form of Efficient Market’, Academy of Contemporary Research Journal ,Vol.II,Issue II, pp.59-70.

Raquib, M.andAlom, K. (2015) ‘Are the Emerging Capital Markets Weak Form Efficient?-

Evidence from the Model of the Dhaka Stock Exchange’, Universal Journal of Accounting and Finance , Vol. 3, Issue 1, pp.1-8.

Worthington, A. and Higgs,H.(2005) ‘Weak-Form Market Eficiency in Asian Emrging and Developed Equity Market: Comparative Tests of Random Walk Behaviour’ University of Wollongong,School of Accounting and Finance, Working Paper Series, No. 05/03,2005.