Weak Form Market Efficiency of the Johannesburg Stock Exchange: Pre, During and Post the 2008 Global Financial Crisis

  • Olwetu Fusthane University of Fort Hare, East London Campus, East London
  • Kapingura F M University of Fort Hare, East London Campus, East London
DOI: https://doi.org/10.22610/jebs.v9i5(J).1907
Keywords: JSE, unit root tests, autocorrelation test, variance ratio

Abstract

The importance of the efficiency of the stock market cannot be underestimated, given the critical role the stock market plays through brings together those who demand and supply development finance. It is against this background that this study focused on analysing the weak form efficiency of the Johannesburg Stock Exchange for the period 2005 to 2016 utilising several methodologies which include unit root tests, autocorrelation test and variance ratio. The empirical results from unit root tests indicated that the null hypothesis of a random walk could not be rejected. The same also applied to the autocorrelation test and variance ratio test except for a few instances. Thus irrespective of the few instances which represent the inefficiency of the market, to a greater extent there is evidence of the market being weak form efficient. Thus even though the work done towards ensuring that the market is efficient is commendable, there is need to ensure that further steps are taken to enhance the efficiency of the market. This is, to some extent suggest that investors are able to make abnormal profits from the market.   

Downloads

Download data is not yet available.

References

Abraham, A., Seyyed, F. & Alsakran, S. (2002). Testing the RW behaviour and efficiency of the Gulf Stock Markets. The Financial Review, 37, 469-480. Abrosimova, N., Dissanaike, G. & Linowski, D. (2005). Testing the Weak- Form Efficiency of the Russian Stock Market. Social Science Research Network (SSRN) Working Paper. [E-document] [Retrieved January 7, 2017] From: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=302287. Affleck-Graves, J. F. & Money, A. H. (1975). A Note on the Random Walk Model and South African Share Prices. South African Journal of Economics, 43(3), 382–388 Akinkugbe, O. (2005). Efficiency in Botswana Stock Exchange: An Empirical Analysis. The Business Review, 4(2), 223-230. Almudhaf, F. & Alkulaib, Y. (2013). Are CIVETS Stock Markets Predictable? Academy Of Accounting & Financial Studies Journal, 17(3), 1-12. Alsayed, M. S. (2012). Weak-form efficiency: Evidence form Dow Jones Islamic Indices. Available from: http://glofin.org/index.php?option=com_civicrm&task=civicrm/file&reset=1&id=473&eid=1068 [20 March 2016]. Appiah-Kusi, J. & Menyah, K. (2003). Return predictability in African Stock Markets. Review of Financial Economics, 12(3), 247-270. Bonga-Bonga, L. (2012). The evolving efficiency of the South African Stock Exchange. International Business & Economics Research Journal, 11(9), 997-1002. Bonga-Bonga, L. & Mwamba, M. (2011). The predictability of stock market returns in South Africa: Parametric Vs. Non-Parametric methods. South African Journal of Economics, 79(3), 301-311. Brooks, C. (2002). Introductory econometrics for finance. 2nd ed. Cambridge: Cambridge University Press. Businesstech (2017). JSE to investigate ‘dodgy trades’ around Gordhan axing: report, Available at< https://businesstech.co.za/news/finance/169589/jse-to-investigate-dodgy-trades-around gordhanaxing-report/ >, Accessed on 12 April 2017. Campbell, J. Y., Lo, A. W. & MacKinlay, A. C. (1997). The econometrics of financial markets. 2nd ed. Princeton: Princeton University Press. Chung, H. Y. (2006). Testing Weak-Form Efficiency of the Chinese Stock Market, the Department of Business Administration in Lappeenranta University of Technology, Unpublished dissertation. Cubbin, E., Eidne, M., Firer, C. & Gilbert, E. (2006). Mean reversion on the JSE. Investment Analysts Journal, 63(1), 1-17. Cuthbertson, K. (1996). Quantitative financial economics. England: John Wiley & Sons Ltd.
Dickey, D. A. & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427–431. Fama, E. F. (1965). The behaviour of stock market prices. Journal of Business, 38, 34-105. Fama, E. F. (1970). Efficient capital markets: a review of theory and empirical work. Journal of Finance, 25, 383-417. Foley, B. J. (1991). Capital markets. Hong-Kong: Macmillan. Gilmore, C. G. & McManus, G. M. (2003). Random Walk and Efficiency Tests of Central European Equity Markets. Managerial Finance, 29(4), 42-61. Hamman, W. D., Jordaan, F. & Smit, F. (1995). Random Walk Hypothesis: Evidence from the JSE. South African Journal of Economics, 57(1), 69-78. Hassan, K. M., Haque, M. & Lawrence, S. (2006). An Empirical Analysis of Emerging Stock Markets of Europe. Quarterly Journal of Business and Economics, 45(1&2), 31-52. Hubbard, P. & O’Brien, P. (2012). Money, banking and the financial system. Hoboken, NJ: Pearson Education. Jefferis, K. & Smith, G. (2005). The Changing Efficiency of African Stock Markets. South African Journal of Economics, 73, 54-67 Jethwani, K. & Achuthan, S. (2013). Stock Market efficiency and crisis: Evidence from India. Asia-Pacific Finance and Accounting Review, 1(2), 35-43. Kendall, M. G. (1950). The analysis of economic time series 1. Journal of Royal Statistical Society, 1(116), 1125. Khaled, M. & Islam, A. (2005). Test of Weak-Form Efficiency of the Dhaka Stock Exchange. Journal of Business Finance & Accounting, 32(7&8), 1613-1624. Lima, E. J. & Tabak, B. M. (2004). Tests of the random walk hypothesis for equity markets: evidence from China, Hong Kong and Singapore. Applied Economic Letters, 11, 255-258. Lo, A. W. & MacKinlay, A. C. (1988). Stock market prices do not follow random walks: Evidence from a simple specification test. Review of Financial Studies, 1(1), 41-66. Magnusson, M. & Wydick, B. (2002). How efficient are Africa's emerging stock markets? Journal of Development Studies, 38(4), 141-156. Mabhunu, M. (2004). The Market Efficiency Hypothesis and the behaviour of stock returns on the JSE Securities Exchange. Unpublished Masters thesis, Rhodes University. Mobarek, A. & Keasey, K. (2002). Weak-Form Market Efficiency of and Emerging Market: Evidence from Dhaka Stock Market of Bangladesh. [E-document] [Retrieved October 26, 2016] From: http://www.bath.ac.uk/centers/ CDS/Enbs-papers/Mobarek_new.htm. Okpara, G. (2010). Stock market prices and the Random walk hypothesis: Further Evidence from Nigeria. Journal of Economics and International Finance, 2(3), 49-57. Ovat, O. O. (2012). Stock Market Development and Economic Growth in Nigeria: Market Size versus Liquidity. Can. Soc. Sci, 8. Owusu, E. L. (2016). Stock Market and Sustainable Economic Growth in Nigeria, Economies 2016, 4, 25. Phillips, P. C. B. & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75, 335-346. Simons, D. & Laryea, S. A. (2005). Testing the efficiency of African Markets. Available from: http://ssrn.com/abstract=Accessed [15 November 2015]. Smith, G. & Jefferis, K. (2002). African stock markets: multiple variance ratio tests of random walks. Applied Financial Economics, 12(4), 475-484. Smith, G. (2008). Liquidity and the informational efficiency of African Stock Markets. South African Journal of Economics, 76(2), 161-175. Smith, G. & Ryoo, H. J. (2003). Variance ratio tests of the random walk hypothesis for European emerging stock markets. The European Journal of Finance, 9, 290-300. Strate. (2015). 2015-2016, Global Competitive Index report published by World Economic Forum. South Africa’s Financial Market Development Continues to rank in Top 20.http:www.strate.co.za; Accessed [17 January 2017]. Tas, O. & Dursonoglu, S. (2005). Testing random walk hypothesis for Istanbul Stock Exchange. International Trade and Finance Association Conference Papers. [E-document] [Retrieved March 23, 2017] From: http://services.bepress.com/otfa/15th/art38. Todae, A. & Lazar, D. (2012). Global crisis and relative efficiency: Empirical evidence from Central and Eastern European stock markets. The Review of Finance and Banking, 4(1), 45-53.
Van Heerden, D., Rodrigues, J., Hockly, D., Lambert, B., Taljard, T. & Phiri, A. (2013). Efficient Market Hypothesis in South Africa: Evidence from a threshold autoregressive (TAR) model, Munich Personal RePEc Archive [Online], Available on
Published
2017-10-20
How to Cite
Fusthane, O., & M, K. F. (2017). Weak Form Market Efficiency of the Johannesburg Stock Exchange: Pre, During and Post the 2008 Global Financial Crisis. Journal of Economics and Behavioral Studies, 9(5(J), 29-42. https://doi.org/10.22610/jebs.v9i5(J).1907
Issue
Vol 9 No 5(J) (2017)
Section
Research Paper

Copyright (c) 2017 Olwetu Fusthane, Kapingura F M

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of a revised paper in the light of suggestions of the reviewers, editorial team edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.