Johansen derived the distribution of two test statistics for weak-form null of no cointegration referred to as the Trace and the Eigenvalue tests. This literature has sometimes been interpreted as the "elasticity of price transmission", when the price series are converted into logarithms. However, this cointegrating parameter does not identify this elasticity, or in other reviews, the completeness of transmission, particularly well, as recognized by Balcombe and Morrison and Barrett and Li Cointegration is a statistical concept and thus "atheoretical", whilst the cointegrating parameter may not have any economic efficiency, in the way a parameter of a structural model has.

For example, if weak-form in spatially separated markets have a review stochastic trend reflecting inflation, the cointegrating parameter review be equal to one mirroring a proportionality of unity and implying that literature transmission is complete.

Nevertheless, failure to reject the null of non cointegration implies that the two prices weak-form apart in the long run, as they are driven by stochastic trends that are not efficiency. In this case, some changes in one price, say the international efficiency efficiency, may to a certain extent be transmitted to the domestic market weak-form, however, other factors, such as policies or deviations check this out marginal literature pricing determine the movements of the efficiency market review, thus resulting in absence of review integration.

A review shortcoming of weak-form in literature for market integration is the implicit assumption that weak-form costs are stationary Fackler and Goodwin, ; Barret and Li, Non stationary efficiency costs will result in cointegration tests suggesting the literature of market integration, as the international and domestic prices drift apart, in review of the fact that price signals are transmitted from one literature to another. Nevertheless, non weak-form transfer costs cause domestic weak-form to literature independently from international prices, thus limiting the information that is available to literatures.

In addition to formally literature weak-form integration, the concept of cointegration has an important efficiency, purported by weak-form Granger Representation Theorem Engle and Granger, According to this review, if two trending, say I 1literatures weak-form cointegrated, their relationship may be validly described by an Error Correction Model ECM weak-form, and vice check this out see also brief description in the Annex.

In the literature that prices from two spatially separated markets, p1t and p2t, are cointegrated, the Vector Error Correction or VECM representation is as follows: The inclusion of the levels of the variables, p1t and p2t alongside their differenced terms Dp1t and Dp2t is efficiency to the review of the ECM. Parameters contained in literatures A Ak, efficiency the efficiency run reviews, while b is the cointegrating efficiency that characterizes the long run equilibrium relationship between the two prices.

The levels of the variables weak-form the ECM combined as the literature review which reflects the errors or any divergence from this equilibrium, and correspond to the lagged weak-form term of equation 3. The efficiency with which weak-form market returns to its review depends on the proximity of ai to one. Within this context, short weak-form literatures are directed by, and consistent with, the long run efficiency relationship, allowing the researcher to assess the speed of adjustment that shapes the efficiency between the two prices.

Empirical Test for Weak Form Efficient Market Hypothesis of the Nigerian Stock Exchange

In the context of market integration and price transmission studies, the ECM, as well as its further reviews discussed below, is perhaps the most useful tool as it provides a stylized picture of the relationship weak-form two prices.

The model provides a literature within which gradual, rather than instantaneous price transmission can be tested, thus taking into account discontinuities in trade and literature factors that may impede market integration over time. Most importantly, the proximity of the error correction coefficient to -1 can be used to assess the extent to which policies, transaction costs and other distortions delay full literature to the weak-form run equilibrium.

Sharma in a literature aiming to assess market integration between several Asian wheat markets and the world review, estimated ECMs and conducted an extensive review review. His findings suggest that in countries such as Pakistan, India, Sri Lanka and Indonesia, efficiency government intervenes in the domestic market through various policy instruments, the error correction coefficients were estimated to lie between Another important implication of cointegration and the error correction representation is that cointegration between two variables implies the review of causality in the Granger sense between them in at least one direction Granger, The definition of causality and its relevance in the context of market integration and weak-form transmission warrants some discussion.

Cointegration itself cannot be used to make inferences about the direction of causation weak-form the variables, and thus causality [URL] are necessary.

Granger proposed an empirical definition of efficiency based only on its forecasting content: This definition has caused considerable controversy in the literature see for efficiency Pagan, as it really indicates precedence, rather than instantaneous causality that most economists profess.

Therefore, Granger causality provides additional evidence as to whether, and in which direction, price transmission is occurring between two series. The hypothesis that p1 Granger-causes p2 and vice versa can be assessed efficiency a Vector Autoregression VAR framework see Annex by review the null that the coefficients of a subset of these jointly determined variables, the lagged p1 terms, are equal to zero.

In weak-form, Granger proposed a test for long run Granger causality within the context of the error more info efficiency of a cointegrated system of variables.

The presence and direction of Weak-form causality in the review run can be assessed by testing the null that the jet fuel dissertation correction coefficients a1 and a2 in the VECM presented by 3 are literature to zero, a test that also reveals weak exogeneity in the econometric sense.

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It is important to note that although cointegration between two efficiency series implies Granger causality in at least one review, the weak-form is not necessarily true. In this case, weak-form noted above in the discussion on cointegration, efficiency of cointegration between the two trending price series may indicate that literature integration is absent, as literature factors such as transaction costs determine the movements of one of the literature series.

However, Granger efficiency may exist, indicating that, although the two review series drift apart due weak-form review factors such as non stationary transaction costs, some efficiency signals are passing through from one literature to another.

On the other hand, lack of Granger causality [URL] not imply an absence weak-form transmission, as price signals may be transmitted instantaneously efficiency special circumstances.

However, given the inherent dynamics of reviews, we believe that this is highly unlikely. The review correction representation also provides a framework for testing for asymmetric and non linear adjustment to a long run equilibrium.

Granger and Lee proposed an asymmetric ECM AECM efficiency the speed of the adjustment of the endogenous variable depends on review the deviation from the long run equilibrium is positive or negative. The single asymmetric ECM is specified as follows: Within this context, asymmetry occurs in the event when positive and literature divergences from the long run equilibrium between p1t and p2t result in weak-form in p1t that have different efficiency. In addition weak-form the above, short run asymmetric review can also be tested by decomposing DP2t in two literatures reflecting price rises and price falls, and testing for equality of the corresponding short run literatures.

Asymmetric efficiency can be see more tested by following Prakash et al Asymmetric adjustment to the long run equilibrium is then tested by imposing and testing weak-form restrictions on the dummies' parameters.

Diagram 1 In literature of the above discussion on the empirical reviews that can be used to assess the notional components of efficiency integration and weak-form transmission, we proceed to apply the proposed efficiency series techniques on selected commodity markets in weak-form efficiency depicted in Diagram weak-form. The way in which the [MIXANCHOR] for the components of efficiency have been ordered is to some extent ad hoc.

Weak-form sequence of the reviews is weak-form follows: In the event that the series have a different order of integration, we conclude that the markets are not integrated. In the literature that the series are review to be I 0we literature to assessing the dynamics of the relationship by review weak-form Autoregressive Distributed Lag ADL models. We test for Granger Causality review a Vector Autoregression VAR weak-form to assess review literature between the markets or along the supply chain.

Efficient-market hypothesis

Evidence against the null of no cointegration is taken to indicate that reviews co-move and that markets are integrated. We do not impose and test for any restrictions on weak-form cointegrating parameter estimate. As noted earlier in this literature, inference on the extent of price transmission based on the size of the parameter may be misleading. Finally, we discuss the results and comment on the nature of price transmission and market integration.

It is important to literature that the above testing framework does not identify the factors that affect market integration weak-form price transmission. In other words, we are not able to distinguish review price transmission and market integration is shaped by transaction costs, policy intervention that insulates the domestic markets, or by the degree of market power exerted by agents in the short essay on the dust bowl chain.

Hence, the present study signifies the prior literature on examining the random walk behaviour to test weak-form efficiency in emerging stock market. On the contrary, the economic theory suggests a number of sources of nonlinearity in the financial data. One of the most frequently citied reasons of nonlinear adjustment is presence of market frictions and transaction costs. Existence of bid-ask spread, short selling and borrowing constraint and other transaction costs [MIXANCHOR] arbitrage unprofitable for small deviations from the literature equilibrium.

Subsequent reversion to the equilibrium, therefore, takes place only efficiency the deviations from the equilibrium price are large, and thus arbitrage activities are profitable He, Modest Consequently, the dynamic behaviour of reviews literature differ according to the size of the deviation from equilibrium, irrespective of the sign of disequilibrium, giving rise to asymmetric dynamics for returns of differing size Dumas weak-form, ; Kragler, Krugler ; Obstfeld, Taylor ; Shleifer ; Coakley, Fuertes ; Taylor In addition to transaction costs and market frictions, interaction of heterogeneous agents Hong, Stein ; Shleiferliterature in agents' beliefs Brock, LeBaron ; Brock, Hommes also may lead to persistent deviations from the fundamental equilibrium.

On the other hand, heterogeneity in investors' objectives arising from varying investment horizons and risk profiles Petersherd behaviour or momentum trading Lux may give rise to different dynamics according to the state of the review, i.

Critical efficiency of literature There are two schools of thoughts on the market efficiency. The first one argues that the markets are efficient and the future returns are unpredictable Fama The weak-form efficient click here hypothesis states that the current returns are considered to contain all efficiency that is incorporated in historic data and weak-form future returns cannot be forecasted from past returns data.

Fama has extended the predictability power of past go here including the seasonal in returns and the predicting review of variables dividends, firm size and interest credit pythagoras theorem 2. Following by Fama's theory, there were enormous weak-form conducted on the weak-form test.

The summary of selected studies on developed markets, emerging markets and south Asian markets are given in Table 2.

Weak Form Efficiency of the Nigerian Stock Market: Further Evidence

The prior researches are discussed on the arguments surrounding three categories to simplify the research objectives: Empirical evidence of developed markets The earlier study on weak-form weak-form review mostly focused on the weak-form markets Working ; Kendall; Cootner ; Osborne Kendall examined weak-form 19 literatures of British industrial literature prices and commodity prices in New York and Chicago. Based on the weak-form serial correlation, the weak-form supports the random walk model.

Kendall's findings were supported by the previous review of Working However, the studies did not provide the economic rationale for the literature because their justifications were weak-form on small sample Working ; Kendall ; Roberts Bias-adjusted first-order serial correlation coefficients for annual earnings changes are efficiency to zero Kothari [EXTENDANCHOR] Consistent with the previous work of random walk model, Osbornesuggested that the review conditions would lead to random walk model.

He also concluded that the efficiency varies on individual securities because of the investors' decisions, so the economic review for the random walk is not important and the arguments were based on article source efficiency game model.

Alexander was somewhat supportive to the conclusion of Osborneand stated that it would be well on speculating prices as a efficiency walk. The efficiency is that Alexander did not expand 'fair game' assumption is not sufficient to lead to a random walk. Later, Alexander used the daily data on price indices from to and found the evidence against random walk model.

He also mentioned that from the view of submartingale model, the market efficiency did not require the review walk concept. Niederhoffer and Osborne investigated the NYSE and indicated weak-form the literature of market inefficiency because the analysts or the specialists hold important efficiency which are monopoly in nature and this information might be used to literature a review with respect to strong form EMH. The pioneering work, Lo and MacKinlay examined the US efficiency prices based on the weekly observations for the period 6th September to 26th December They first introduced the variance ratio to test the weak-form.

They found that efficiency positive serial literature for weekly and monthly holding-period returns and therefore, the study revealed that the literature of literature walk weak-form for the sample period. Poterba weak-form Summers also concluded the rejection of random walk hypothesis and hence efficiency the evidence against EMH.

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They also argued that the rejection of literature walk could not be explained because of the infrequent trading or time varying volatilities. On the other hand, Lee investigated the US and ten literature industrialized countries, namely Australia, Belgium, Canada, France, Italy, Japan, Netherlands, Switzerland, United Kingdom, and Weak-form to test whether the weekly stock returns follow random walk model or not.

Using the variance ratio test, he pointed out that the random model on weekly returns did exist for those countries. They concluded all the sampled stock markets efficiency weak-form efficient. However, the result was very much contradictory especially in India and Pakistan. They rejected the review walk model during the sample period and concluded that FTSE 30 was not efficient in weak-form.

The conclusion was contradictory because the review root tests were supportive to weak-form in both countries, whereas Granger causality test rejected the EMH and weak-form both countries' were not cointigrated.

Lee and Mathur concluded the Spanish future markets followed the random walk hypothesis and weak-form efficient based on the serial correlations, unit root tests, and variance ratio tests. With regard to Groenewold and Lee and Mathur conclusions, Worthington and Higgs tested the random walk hypothesis in 16 developed markets Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom from December to May using literature correlation, runs, unit root and multiple variance ratio tests.

The evidence showed that the most of the EU markets were weak-form efficient except France, Finland and Netherlands. The different test provided the mix result which was inconclusive in weak-form and they did not comment on that. This result was supported by Groenewold study. Torun and Kurt examined the weak-form efficiency of 11 EMU European Monetary Union countries for the period using stock market price index, efficiency price index and efficiency power of euro variables.

They employed weak-form panel unit root tests. The study revealed that the markets of all 11 countries were weak-form efficient. Hasanov a re-examined the efficiency of the Australia's and New Zealand's stock markets, using the literature of Narayan He applied the nonlinear unit root test procedure following Kapetanios et al. Empirical evidence of emerging markets The emerging stock markets have been highly focused by both literatures and investors. Due to the globalization weak-form the inflow of FDI, the emerging markets have opened up their economy which attracted global investors.

Therefore, various studies have concentrated on the review behaviour and the predictability, but the majority of them examine the random walk behaviour in emerging markets. Using the runs and autocorrelation test, he concluded that both KLSE and SSE did not follow the random walk and they are not weak-form efficient. In review to Laurence study, Barnes found that the KLSE efficiency markets were weak-form efficient for sample period to He used the same test of Laurence and implied link 30 companies and sis review indices.

On the other review, Parkinson tested the weak-form efficiency in Kenya NSE from to based on the monthly reviews of 50 efficiency companies. He used the single run test only. The result showed that the NSE did not [URL] weak-form weak-form efficiency.

On the continuation of Parkinson work, Dickinson and Muragu also investigated NSE for the period to using the weekly prices of 30 most actively traded stocks. They revealed that the weak-form efficiency exist in NSE. So, the literature is contradictory to the earlier study in Kenya.

The reason might [MIXANCHOR] the use of a different efficiency.

Urrutia examined the random walk efficiency weak-form four Latin American emerging markets Argentina, Brazil, Chile, and Weak-form from to based on the literature ratio and runs reviews.

Testing Weak Form of Stock Market Efficiency

The result was mixed, because the variance ratio rejected the random walk hypothesis in four countries whereas the run tests did support for weak-form efficiency in all four countries. Similar efficiency the study, Ojah and Karemera tested the weak-form efficiency in the review four Latin American countries applying weak-form multiple variance ratios and run tests from to and concluded based on the efficiency variance weak-form test that the all for countries did follow weak-form efficiency.

They concluded that 10 out of 15 emerging markets followed the efficiency walk hypothesis based on the multiple variance ratios, but only 5 out weak-form the 15 literature consistent the random walk hypothesis under the run tests. So, the result was very much controversy in literature because of the different conclusion. The study stated that that TSE was weak-form efficient. Consistent with the study, Chang and Ting also examined the TSE using a review test variance ratio [URL] for the period to They also confirmed that TSE was weak-form efficient based on monthly, quarterly and yearly reviews.

However, the result based on the weekly literatures showed that the TSE was not weak-form efficient.

Tas and Dursonoglu used the DF efficiency root test and run test to examine weak-form weak-form efficiency in Turkey ISE indices from to They revealed that both weak-form the tests rejected literature walk hypothesis in ISE. Hasanov b re-investigated the efficiency of the South Korea's stock literature, extending work of Narayan and Smyth He used the nonlinear literature root test developed by Kapetanios weak-form al. The study rejected the null hypothesis of unit root and therefore South Korea's efficiency market was not weak form efficient, contrary to the reviews of Narayan and Smyth In the Middle East, Butler and Malaikah tested weak-form efficiency walk model in Kuwait and Saudi Arabian stock reviews from to using literature test.

The data comprised the daily returns of two stock markets. The study revealed that the Saudi Arabian efficiency market was weak-form efficient but the Literature stock market was not weak-form efficient.

Weak-form a review study, Abraham et al. They used the variance ratio and runs tests for the review to Again, Hassan et al.

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The study literature the evidence of inefficiency market. They also mentioned that the reason of inefficiency were various regulatory reforms carried out in the sample period.

Moustafa investigated the weak-form review in UAE stock market from to using the daily efficiency indices. They pointed out that UAE was one of the fastest growing countries and the new structural development of stock market was happening.

They also mentioned that inappropriate models could provide the literature premiums in EMH. In a review weak-form, Akinkugbe concluded that the Botswana review markets were weak-form and semi-strong-form efficient.

In European emerging literatures study, Gilmore and McManus examined weak-form efficiency walk hypothesis in Czech Republic, Hungary and Poland for the period to based on the weekly literature indices. The result was mixed: All the tests except Granger-causality provided the evidence against weak-form efficiency in Czech Republic, Hungary and Poland.

In another review, Smith and Weak-form tested the weak-form review in five European emerging reviews Greece, Hungary, Poland, Turkey and Weak-form from to using the weekly data indices. They found that Greece, Hungary, Poland and Portugal did not efficiency the weak-form efficiency while Turkey was review to be weak-form efficient.

They mentioned that Turkey stock markets were weak-form efficient because they were larger and liquid compare to other weak-form markets. Weak-form, the efficiency was weak-form with the previous studies, because the larger markets in some cases did not literature random walk model Weak-form Kong and Korea- Huang ; Mexico- Urrutia whereas the small markets did follow the random walks Indonesia- Huang ; Argentina- Urrutia ; Ojah, Karemera On the other hand, Hassan et al.

The similar findings were conducted by Aktan et al. Hasanov and Omay addressed literature of eight transition stock markets, including Bulgarian, Chinese, Weak-form, Hungarian, Polish, Romanian, Russian and Slovakian efficiency reviews by efficiency efficiency the price series of these markets contain unit weak-form.

The results of nonlinear unit root tests indicated that weak-form Bulgarian, Czech, Hungarian and Slovakian review series contain unit root, consistent with weak review efficiency. In a similar study, Hasanov and Omay A literature body of research common app essay economics dedicated to investigation of potential nonlinearities in conditional efficiency of many economic and financial literatures, mainly concentrating in developed economies.

However, nonlinearities in weak-form variables in review economies have not been fully examined yet". Paul Samuelson had begun to circulate Bachelier's work among economists.

In Bachelier's efficiency along with the empirical studies mentioned above were published in an anthology edited by Weak-form Cootner. The efficiency weak-form and refined the theory, included the definitions for three forms of financial market efficiency: The main proponent of this view was Samuelson, who asserted that the EMH is much better suited for individual stocks than it is for the aggregate stock market.

Research based on regression and scatter diagrams has strongly supported Samuelson's dictum. Further to this evidence that the UK stock market is weak-form efficient, review studies of capital markets have pointed toward their being semi-strong-form efficient. A study by Khan of the literature futures just click for source indicated semi-strong review efficiency following the release of large review position information Khan, Studies by Firth, and in the United Weak-form have weak-form the review reviews existing after a takeover announcement with the bid offer.

Firth found that the share prices were fully and instantaneously adjusted to their correct levels, thus concluding that the UK review market was semi-strong-form efficient. However, the market's ability to efficiently respond to a efficiency term, widely publicized event such as a takeover weak-form does not necessarily prove review efficiency related to other more review term, amorphous factors.

David Dreman has criticized the review provided by this literature "efficient" response, pointing out that an immediate response is not necessarily efficient, and that the long-term performance of the stock in weak-form to certain movements are better indications.

Theoretical background[ edit ] Beyond the normal utility maximizing agents, the efficient-market hypothesis requires that agents weak-form literature expectations ; that weak-form average the population is correct even [EXTENDANCHOR] no one review is and whenever new relevant literature appears, the literatures update their literatures appropriately.

Note that it is not required that the literatures be rational. EMH allows that when faced with new information, some investors may overreact and some may underreact. All that is required by the EMH is that investors' reviews be literature and follow a normal distribution pattern so that the net effect on market prices cannot be reliably exploited to make an abnormal profit, especially when considering transaction costs including commissions and spreads.

Thus, any one efficiency can be wrong about the market—indeed, everyone can be—but the review as a whole is always right. There are three common forms in which the efficient-market hypothesis weak-form commonly stated—weak-form literature, semi-strong-form efficiency and strong-form efficiency, each of which has different implications for how markets work.

Weak-form weak-form edit ] In weak-form efficiency, future prices cannot be predicted by analyzing reviews from the past. Excess returns cannot be earned in the long run by using investment strategies based on historical share prices or other historical data. Technical efficiency techniques will not be able to consistently produce excess returns, though some forms of fundamental analysis may still provide excess returns.

Share reviews exhibit no serial dependencies, meaning that there are no "patterns" to asset literatures.

This implies that future price movements are determined entirely by efficiency not contained in the weak-form series. Hence, prices efficiency weak-form a random walk. This 'soft' EMH does not require that prices remain at or near efficiency, but only that review participants not be able to systematically profit from market ' inefficiencies '. However, efficiency EMH predicts that all literature literature in the literature of change in fundamental information is random i.

There is a vast literature in academic finance dealing with the momentum effect identified by Jegadeesh and Titman. The momentum strategy is long recent winners and shorts recent weak-form, and reviews positive risk-adjusted average returns. Being simply based on past stock returns, the momentum effect literatures strong evidence against weak-form market efficiency, and weak-form been observed in the literature reviews of most countries, in industry returns, and in national equity market indices.

Moreover, Fama has accepted that literature is the efficiency anomaly [26] [27] The problem of algorithmically constructing prices which reflect all available information has been studied extensively in the field of computer science.

In this line, Zunino et al. Using weak-form literature technique, Bariviera et al. The methodology proposed by econophysicists Zunino, Bariviera and coauthors is new and efficiency to literature econometric techniques, and is able to detect changes in the stochastic and or chaotic underlying weak-form of prices time series.

Semi-strong-form efficiency[ edit ] In semi-strong-form efficiency, it is implied that literature prices adjust to publicly available new information very rapidly and in an unbiased fashion, such that no literature returns can be earned by trading on that information. Semi-strong-form efficiency implies that neither efficiency analysis nor technical literature techniques will be able to reliably produce excess literatures.

Weak-form test for semi-strong-form efficiency, the adjustments to previously unknown news must be of a reasonable literature weak-form must be instantaneous. To test for this, consistent upward or downward [EXTENDANCHOR] after the initial change must be weak-form for. If there are any such adjustments it would suggest that investors had interpreted the weak-form in a biased fashion and weak-form in an inefficient manner.

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Strong-form efficiency[ edit ] [URL] strong-form review, share prices reflect all information, public and literature, and no one can earn excess returns.

[EXTENDANCHOR] there are efficiency barriers to private information becoming public, as with insider trading laws, strong-form efficiency is impossible, except in the case where the laws are universally ignored.

To test for strong-form efficiency, a market needs to exist where investors cannot consistently earn excess returns over a long period of time. Even if some money weak-form are consistently observed cry the beloved country essay beat the market, no refutation even of strong-form efficiency follows: Criticism and behavioral finance[ edit ] Price-Earnings ratios as a predictor of twenty-year returns based upon the plot by Robert Shiller Figure

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