RANDOM WALKS AND MARKET EFFICIENCY TESTS: EVIDENCE FOR US AND AFRICAN CAPITAL MARKETS
RANDOM WALKS AND MARKET EFFICIENCY TESTS: EVIDENCE FOR US AND AFRICAN CAPITAL MARKETS

Author(s): Rui Dias, Hortense Santos, Paulo Alexandre, Paula Heliodore, Cristina Vasco
Subject(s): Social Sciences, Economy
Published by: Udruženje ekonomista i menadžera Balkana
Summary/Abstract: The 2020 Russia-Saudi Oil Price War was an economic war triggered in March 2020 by Saudi Arabia in response to Russia’s refusal to reduce oil production to keep oil prices at a moderate level. This economic conflict resulted in a sharp drop in the price of oil in 2020, as well as crashes in international markets. In the light of these events, our aim was to test the efficient market hypothesis, in its weak form, in the stock markets of Botswana (BSE), Egypt (EGX 100), Kenya (NSE 20), Moroccan All Shares (MASI), Tunisia (Tunindex), and the MARKET of the USA (DOWJONES INDUSTRIALS), in the period of September 2, 2019 to January 11, 2021. The results therefore support the evidence that the random walk hypothesis is not supported by the financial markets analyzed in this period of global pandemic. The values of variance ratios are lower than the unit, which implies that the yields are autocorrelated in time and, there is reversal to the mean. In order to validate the results, we estimate the model αDFA that shows that the stock markets NSE 20 (0.75), TUNINDEX (0.69), MASI (0.63), EGX 100 (0.64), BSE (0.61), DOW JONES (0.58) show autocorrelation in their profitability, that is, these markets show signs of (in) efficiency, in its weak form, persistence in profitability, validating the results of the variance test by Rankings and Wright Signs. In conclusion we can show that the U.S. stock market has more market efficiency when compared to the African stock markets analyzed. The authors consider that the results achieved are of interest to investors looking for opportunities for portfolio diversification in these regional stock markets.

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