The Random Walk Behavior and Weak-Form Efficiency of the Istanbul Stock Market 1997-2011: Empirical Evidence

摘要

The random walk theory asserts that stock price movements are unpredictable and follow a random erratic behavior. Similarly, the weak-form efficiency of the efficient market hypothesis states that everything is random; and past historical data on stock prices are of no use in predicting future prices. Thus, the aim of this study is to examine the random walk theory and testing the weak-form efficiency of Istanbul Stock Exchange. The study uses daily observations of XU 030 Index from January 1997 until December 2011, and employs unit root tests, runs tests and variance ratio test to investigate the random behavior of Istanbul Stock Market. The tests empirical findings reject the null hypothesis suggesting that Istanbul Stock Exchange does not follow a random walk behavior and, therefore, it is informationally inefficient at the weak-form level. These results suggest that investors will realize abnormal returns by using historical sequences of stock prices, data related to trading volumes and other market-generated information.