Middle Eastern stock markets: absolute, evolving and relative efficiency

Niemczak, Kinga; Smith, Graham

Abstract

The martingale hypothesis is tested for 11 Middle Eastern stock markets using three finite sample variance ratio tests. For comparative purposes, the same tests are applied to data for the United States. The tests are carried out with both observed returns and returns corrected for thin trading so the effect of the thin trading correction is evident. A rolling window is used to track changes in efficiency through time and rank markets by relative efficiency. Overall, most markets experience successive periods of efficiency and inefficiency which is consistent with the adaptive markets hypothesis. Predictability varies widely: the least predictable stock markets are those located in Turkey, Egypt and Israel; the most predictable are in Jordan, Lebanon and Saudi Arabia. When returns are corrected for thin trading, there is much less variation in relative efficiency.

Citation

Niemczak, K., & Smith, G. (2013). Middle Eastern stock markets: absolute, evolving and relative efficiency. Applied financial economics, 23(3), 181-198. https://doi.org/10.1080/09603107.2012.714068

• Journal Article Type: Article
• Publication Date: Jan 5, 2013
• Deposit Date: Jul 15, 2013
• Journal: Applied Financial Economics
• Print ISSN: 0960-3107
• Electronic ISSN: 1466-4305
• Publisher: Routledge
• Peer Reviewed: Peer Reviewed
• Volume: 23
• Issue: 3
• Pages: 181-198
• DOI: https://doi.org/10.1080/09603107.2012.714068
• Keywords: Martingale, Middle Eastern stock markets, changing efficiency, relative efficiency, variance ratio
• Publisher URL: http://www.tandfonline.com/doi/full/10.1080/09603107.2012.714068#.UeOnMI32ZMM