On the validity of the weak-form efficient markets hypothesis applied to the London stock exchange

Abstract

The validity of the weak form of the efficient markets hypothesis (EMH) is tested for the FTSE 30 share index during a period when government economic policy towards the financial markets was relatively unchanging. The EMH would suggest random walk behaviour but this does not occur; instead the data series has significant heteroscedasticity. The series is successfully explained by a GARCH M(1, 1) model. We use the BDS test to show that the residuals from this model are IID.

On the Validity of the Random Walk Hypothesis Applied to the Dhaka Stock Exchange

“…Since ψ is 0.747 < 1, the conditional variance is stationary and mean-reverting. The asymmetry coefficient, δ 2 , is negative and marginally significant at the 13% level, which suggests that downward movements in the stock market are followed by higher volatilities than upward movements of p For example, Al-Loughani and Chappell [3], Chappell et al [11], and Chappell and Eldridge [10] employed the non-parametric BDS test based on correlation analysis using the standardized residuals from a GARCH model fitted to the raw return series. q Chowdhury [13] the same magnitude.…”

On the validity of the weak–form efficient markets hypothesis applied to the London stock exchange: comment

“…The empirical work and interpretation of the results of Al-Loughani and Chappell (1997) is commented upon. On the basis of the reported results, and contrary to the authors' conclusion, it is argued that although the random walk hypothesis is rejected, the weak-form market e ciency hypothesis (WFME), for the London stock exchange cannot be rejected.…”

“…This may cause some confusion on the use of proper tests for market eciency, as well as on the interpretation of the results from such tests. Seizing the opportunity from the interesting paper of Al-Loughani and Chappell (1997), henceforth the authors' , on the weak-form market e ciency (WFME), some comments are made on conditional heteroscedasticity in relation to market e ciency, as well as on the conclusions in which the authors reach using these tools.…”

Price Discovery from the Chinese A-Share Market: Trend Break Tests Using the Perron Mixed Model C

“…However, a huge literature indicates the inefficiency of stock price indices or markets [9,10], implying that investors can benefit from stock investments. The S&P 500 long-run price structure [11], the FTSE 30 share index on the London Stock Exchange [12], stock prices in Athens [13], and the monthly prices in the Asia-Pacific equity markets [14] are inconsistent with the random walk hypothesis. However, the Hang Seng Index on the Hong Kong Stock Exchange follows a random walk, implying that the index maintains the weak-form efficiency [15].…”