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Market Efficiency in Emerging Stock Market

Evidence from Bangladesh

Asma Mobarek, Senior Lecturer, Department of Accounting and Finance, Faculty of Business, University of Botswana, Private Bag UB 00701, Gaborone, Botswana. E-mail: mobareka{at}mopipi.ub.bw, asma0301{at}yahoo.co.uk. Tel: +2673552223.

A. Sabur Mollah

A. Sabur Mollah, Senior Lecturer, Department of Accounting and Finance, Faculty of Business, University of Botswana, Private Bag UB 00701, Gaborone, Botswana. Tel: +267 355 2236. E-mail: mollahas{at}mopipi.ub.bw.

Rafiqul Bhuyan

Rafiqul Bhuyan, Assistant Professor of Finance, College of Business Administration, California State University, Sacramento. 6000 J street, Sacramento, CA 95819-6088. E-Mail: bhuyanr{at}csus.edu. Tel: 916 278 7229.

This study seeks evidence on whether the return series on Bangladesh's Dhaka Stock Exchange (DSE) is independent and follows the random walk model. The study focuses on assessing if the DSE deviates from idealised efficiency. The sample primarily includes all the listed companies on the DSE daily price index over the period 1988 to 2000. The results of both non-parametric (Kolmogrov—Smirnov: normality test and run test) and parametric test (Auto-correlation test, Auto-regressive model, ARIMA model) provide evidence that the security returns do not follow the random walk model and the significant auto-correlation coefficient at different lags reject the null hypothesis of weak-form efficiency. The results are consistent with observations in different sub-samples without outlier and for individual securities. This anomaly with the efficient market hypothesis supports the thought that the market does not respond to new information instantaneously. This may be due to a delay in dissemination to new price sensitive information or biases (under or over reaction) in the response of market participants to such information. It may also be for the momentum effect related to herding in particular ‘positive feed back trading’ or ‘trend following’ the trading strategy by the average investors.

Key Words: Weak-form market efficiency • emerging markets • stock market • information • JEL Classification: G12 • JEL Classification: G14 • JEL Classification: G34

Journal of Emerging Market Finance, Vol. 7, No. 1, 17-41 (2008)
DOI: 10.1177/097265270700700102


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