Testing the Weak Form of Efficient Market Hypothesis: Empirical Evidence from Jordan

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1 Ieraioal Busiess ad Maageme Vol. 9, No., 4, pp. 9- DOI:.968/554 ISSN 9-84X [Pri] ISSN [Olie] Tesig he Wea Form of Efficie Mare Hypohesis: Empirical Evidece from Jorda Izz eddie N. Aazeh [a],* [a] Assisa Professor, Fiace, Philadelphia Uiversiy, Jorda. *Correspodig auhor. Received Augus 4; acceped 5 Ocober 4 Published olie November 4 Absrac Efficie Mare Hypohesis (EMH implies ha he fuure price of a soc is upredicable wih respec o currely available iformaio; our sudy coduced i order o es efficiecy of he Amma soc mare (ASE reurs a he wea-form, by usig daily observaios for he Amma Soc Exchage. Parameric ad oparameric ess e uilized for examiig he radomess of soc prices for ASE. The Jarque-Bera es show evidece for ormaliy ha he daily reurs of he ASE are o ormally disribued, ad he rus ess boh deec ha he daily reurs are iefficie a he wea form. I addiio, he ui roo ess (Augmeed Dicey-Fuller (ADF ui roo es ad Phillips-Pero (PP ui roo es sugges he wea-form iefficiecy i he reur series. I geeral, we ca coclude ha he ASE soc mare is iefficie a he wea form level. Key words: Wea-form efficie mare hypoheses; Rus es; Ui roo ess Aazeh, I. e. N. (4. Tesig he Wea Form of Efficie Mare Hypohesis: Empirical Evidece from Jorda. Ieraioal Busiess ad Maageme, 9(, 9-. Available from: hp:// DOI: hp://dx.doi.org/.968/554 INTRODUCTION efficie mare hypohesis (EMH has bee a lo of he discussio i he fiacial lieraure because of is impora implicaios; EMH firsly developed by Paul Samuelso (965 ad Fama (97. Ad boh researchers poi ou ha he EMH assumes ha share price adjus rapidly for ay ew iformaio cosequely, he curre prices fully reflec all available iformaio s ad should follow a radom wal process, which meas sequeial soc price chages (reurs are idepedely ad ideically disribued (IID. Fama (97 published a reassessme of efficie mare hypoheses heory wih a empirical base, ad disribued mare efficiecy io hree levels based o iformaio: wea, semi-srog ad srog form. Wea-form of efficie mare hypoheses assumes ha he curre soc prices fully reflec all hisorical mare iformaio such as: (hisorical sequece of prices, radig volumes, ad ay mare geeraed iformaio. Semi srog-form efficie mare hypoheses, assumes ha he curre soc prices reflec o oly he hisorical iformaio bu also ew publicly available iformaio such as: divided aoucemes, ad ecoomic ad poliical ews. Third, he srog-form efficie mare hypoheses assume ha soc prices reflecs all iformaio from boh public ad privae sources, so ha o oe ivesor ca reap abormal rae of reur. regulaory auhoriies i all couries are looig i all imes o he bes policies i order o decrease he mare ierfereces o he miimum level, EMH ad radom wal heory remaied popular for he las decades. I is impossible o ge ay ousadig reur uless if here is a gap bewee mare iformaio ad efficiecy. Academicias, ivesors ad regulaory are willig o explore he behavior of soc prices, basis of ris reur models. Fially if a soc mare is iefficie, (he pricig sysem may o assure he efficie allocaio of capial i a ecoomy which effecs egaively o he aggregae ecoomy, Hamid ad Aash (. This sudy came o es he wea-form mare efficiecy of he soc mare reurs of Jorda by usig daily observaios for Amma Soc Exchage (ASE. I order o coduc he es; parameric ad oparameric ess of Radom Wal Model (RWM ha 9 Copyrigh Caadia Research & Developme Ceer of Scieces ad Culures

2 Tesig he Wea Form of Efficie Mare Hypohesis: Empirical Evidece from Jorda will provide clear evidece he efficiecy of ASE a he wea level. This sudy is, however, orgaized i six secios as follows: Secio lieraure review; secio daa ad mehodology; Secio 4 preses empirical resuls; ad Secio 5 repors coclusio.. LITERATURE REVIEW Due o he huge implicaios of he EMH i he operaios of fiacial mares is sill cosaly bee examied, Over he years a umber of researchers have examied he exisece of he heory i various mares developed or udeveloped, ad differe resuls have bee foud. Samuelso (965 iroduced he effecive effors i his field, by developed he heoreical framewor of he Radom Wal Model (RWM ha used o es he efficiecy of capial mare a he wea-level. Fama (97 sugges hree models i order o esig he mare efficiecy, ad defied a mare as beig efficie if prices fully reflec all available iformaio s. Also Fama (97 divided he empirical ess of he hypohesis io hree forms based o he give iformaio se, amely wea form, semi-srog form, ad he srog form. Grager (975, Fama (99, Lo (997, Abeyseera (, ad Groewold e al. (, esed empirically he Radom wal model ad he wea form of EMH. I order o es he efficiecy a he wea-form several saisical echiques have bee used such as rus es, ui roo es, ad specral aalysis. For isace, Shamma ad Keedy (997, Karemera e al. (999, ad Abraham e al. ( adoped ru es, While Moorerjee ad Yu (999, Groewold e al. (, ad Seddighi ad Nia (4 coduced boh ru es ad ui roo es i heir sudies. A umber of researcher's applied oherwise ess for mare efficiecy i he wea form he serial correlaio es, icludig he correlaio coefficie es, Q-es which is adoped by Diciso ad Muragu, (994, Fawso e al. (996, ad Groewold e al. (. Also, Sharma ad Keedy (977, ad Fawso e al. (996 used specral aalysis, ad Seddighi ad Nia (4 used auoregressive codiioal heeroscedasiciy (ARCH es. The empirical evidece o developed mares cofirmig he wea-form efficiecy of he EMH, for isace, Cooer (96, Fama ad Blume (966, Williamso (97, Nicolaas (997, ad Sugs ad Johso (6. I coras, he empirical evidece coducig sudies i emergig mares has bee mixed resuls, bewee accep or rejec he ull hypohesis of wea form EMH. For isace, Dahel ad Laabas (999 repored ha he Kuwai soc mare is srogly suppor he wea form of EMH, ad rejec he wea form of he EMH for Bahrai, Kuwai, Saudi Arabia ad Oma. Wheeler e al. ( o success o suppor he wea form of EMH for he soc mare of Warsaw (Polad. Also, Abeyseera ( ad Abraham ( heir empirical fidig rejec he hypohesis of wea form efficiecy for soc mares i Sri Laa, Bahrai Kuwai, ad Saudi Arabia. O he oher had, Karemera e al. (999 srogly suppor he wea form of EMH for he soc mare i Turey. However, he previous sudies cao give us a clear suppor for he wea form efficiecy i emergig mares, ad much wor mus be coduc o explore price dyamics i emergig mares. For our coury, i is ieresig o fid if ASE is efficie a level wea form or o.. DATA AND METHODOLOGY. Daa The sample period for our sudy, spa from Ja o Dec for 44 observaios, ad he daa se is comprised of closig daily reur for soc mare idex of Amma Soc Exchage (ASE weighed idex. The mare reurs calculaed by he followig formula: r L(P /P - ( Where P represe he ed-of-day closig price of he ASE idex, P - represe he previous day closig price.. Mehodology The mare efficiecy uder he RWM (wea form EMH reveals ha hisorical prices cao be used o predic fuure prices of a soc, Therefore he movemes of a socs price are idepedely ad ideically disribued (Fama, 97. I he empirical wors, i order o deermie paers i ime series here are may echiques available. Uder he RWH, a mare is efficie a he wea form if mos curre prices fully reflec all iformaio coaied i pas prices, ad he form reveal ha pas prices cao be used as a predicive ool for fuure soc price movemes. We employed ecoomerics mehods which are used i he lieraures o es he idepedece of prices daa. The problem is o see wheher he soc prices is predicable or o by explorig serial depedece of soc reurs, i order o es he radom wal hypohesis (RWH we used parameric ad o-parameric mehods, hrough employig hree differe procedures auocorrelaio es, ru es, ad ui roo ess... Auocorrelaio Fucio Tes (ACF Firsly, i order o deec he radom wal of he soc reurs we employ auocorrelaio fucio es (ACF. Auocorrelaio fucio (ACF measures he correlaio bewee he soc reur a curre period ad is value i he previous period which give by: Copyrigh Caadia Research & Developme Ceer of Scieces ad Culures

3 Izz eddie N. Aazeh (4. Ieraioal Busiess ad Maageme, 9(, 9- r r( r + r / r r ( Where is he umber r of r( lags, r + ad r / r represes ( r r he real p rae of reur calculaed r l as: α + µ p p r l α + µ ( p r r( r + r / ( + / ( r r We apply his es i order o ideify wheher he serial correlaio coefficies are sigificaly differe ( + / from zero or o, ad ( i order p r l... o es he joi hypohesis ha all auocorrelaios are r r( r + r / simulaeously α + µ r r p equal o zero, The Ljug Box (Q saisic ( is used... p which give by: r r α r T + l α + µ α i r i ( + p i( / (4 r α r T + α i r i is he jh auocorrelaio ad is he umber r ( α Q LB + β ( r (... + ε of observaio, uder he ull hypoheses / of zero r r( r + r / r r auocorrelaio a he rfirs α + auocorrelaios β ( r + ε which is disribued as chi-sequared. r α r ( + α T +... α i r p i.. Ui Roo rtess l α + µ Tesig o-saioariy p r α is + ecessary αr for T + radom α i r wal hypoheses, i his paper r we α + used β ( r wo + εui i roo ess: (parameric he Augmeed Dicey-Fuller Q (ADF (979, LB ( + / ad (oparameric r Phillips-Pero r( r + r / (PP r r ui roo es r α + β ( r + ε (988. Firsly ADF es ( is pbased... o he esimaio o he followig formula: r l α + µ p r α r T + α i r (5 i Where r Q he LB ime ( + series; / ime red; Δ firs differece operaors; r γ α error + β ( erm r + wih ε zero mea ad cosa variace. ( The ull hypoheses of he ui roo... α. Phillips ad Perro (987 made a modificaio for Dicey-Fuller -saisic wih Z saisic, which allows for auocorrelaio r α + ad αr codiioal T + heeroscedasiciy α i r i i error erm of Dicey- fuller regressio, which based i he followig esimaio. Campbell ad MacKilay (997: r α + β ( r + ε (6 The model ca be give wih he above specificaio of cosa ad red, PP es esures ha he es resuls are poe i he exisece of drifs ad reds, ad if auo correlaio i he series uder ivesigaios is suspeced he PP es is more appropriae... Ru Tes Ru es is a oparameric es for serial depedece i he soc Reurs, which desiged o examie wheher or o a observed sequece is radom. The ru es, (also called Geary es, is a o-parameric es whereby he umber of sequeces of cosecuive posiive ad egaive reurs is abulaed ad compared agais is samplig disribuio uder he radom wal hypohesis (Campbell e al. 997; Gujarai,. A ru: is he freque occurrece of he same value of a variable. Soc reur rus ca be egaive, posiive, or have o chage, he legh is umber of imes a ru ype occurs i successio. Uder he ull hypohesis ha sequeial oucomes are idepede, he oal expeced umber of rus disribued as ormal wih he followig mea (Gujarai, : σ µ µ N( N + i N: is he oal umber of observaios, ad i is he umber of price chages (reurs i each caegory. σ Whe µ he observaio larger ha observaios he samplig disribuio of μ is approximaely ormal ad he sadard error of μ(σμ is give by: Z ( r ±.5 µ /σ µ σ µ + N( + N( N N ( N i µ N( N + i i i N i i i (8 I order o impleme Z ( r ±.5 ru es µ we /σ µ ca use sadard ormal Z-saisics wheher he acual umber of rus is cosise + N( N + ( ( wih he hypohesis N N N N i of i idepedeces. The i i i formula of sadard score give by: Z ( r ±.5 µ /σ µ (9 Where r: acual umber of rus, µ: expeced umber of rus, ad.5 is a coiuiy adjusme (Wallis ad Robers, 956. i + µ NN( ( N + N( N N N ( N i i i i i i i. EMPIRICAL RESULTS We sared our ivesigaio wih some basic descripive saisics of he soc reurs for ASE which i Table ; Mea reurs is posiive wih posiive urosis, which meas ha he disribuios of soc reurs are lepouric idicaig higher peas ha expeced from ormal disribuios. I order o es he hypohesis of ormal disribuio, able resuls provide evidece of o-ormaliy i daily soc reurs for ASE depedig o Jarque-Bera es resuls. Table Descripive Saisics for Daily Idex Reurs of ASE Dae: 8/7/4 Time: 6:5 Sample: 44 N RT Mea. Media.89 Maximum Miimum Sd. Dev..96 Sewess Kurosis Jarque-Bera Probabiliy Observaios 44 (7 Copyrigh Caadia Research & Developme Ceer of Scieces ad Culures

4 Tesig he Wea Form of Efficie Mare Hypohesis: Empirical Evidece from Jorda I his paper serial auocorrelaio (ACF used, ad Ljug-Box Q-saisics o expad our aalyses for radomess. Table prese es of auocorrelaio es usig up o lages depedig upo aaie crierio, he ull hypohesis of here is o auocorrelaio for soc reurs of ASE. The sigificace of auocorrelaio coefficie which prese i Table deec ha he ull hypohesis of wea-form mare efficiecy is rejeced a. level of sigificace, which is mea ha he ASE is iefficie a he wea-form; Therefore i is iferred ha he hisorical reurs for ASE cao be used o predic fuure reurs. Table Auocorrelaio ad Q-saisics for Daily Idex Reurs of ASE Dae: 8/4/4 Time: 5:6 Sample: 44 Icluded observaios: 44 Auocorrelaio Parial Correlaio AC PAC Q-Sa Prob ** ** * As a ecessary codiio for Radom wal, we apply ui roo ess Augmeed Dicey-Fuller es (ADF parameric es, ad Phillips-Pero es (PP o-parameric es. Opimal lag legh for he ADF es seleced wih Aaie ifo crieria ad maximum lag is se o. Upo he Radom wal hypohesis, he soc price series mus have a ui roo whereas he reurs series mus be osaioary. The resuls of wo ui roo ess preseed i Table coclude ha ui roo is abse from all he reur series, which idicaig ha he socs reur series for ASE are saioary, ad iefficie a he wea-level. Table Ui Roo Tes for Daily Idex Reurs of ASE Ui Roo Tess T-Sa P-Value Augmeed Dicey-Fuller (ADF es Phillips-Pero (PP es Fially, we apply aoher o-parameric es (ru es, he resuls of he rus es for daily soc reur prese i Table 4. The resuls idicae ha he acual rus of soc reurs for ASE are sigificaly smaller ha heir correspodig expeced rus a % level, so ha he ull hypohesis of idepedece amog soc reurs ASE is rejeced for hese series. Table 4 Rus Tes for Daily Idex Reurs of ASE Rus Tes Tes Value a. Cases < Tes Value 7 Cases Tes Value 7 Toal Cases 44 Number of Rus 4 Z Asymp. Sig. (-ailed. All he ess of efficiecy a he wea level showed ha he soc reurs for ASE are o radom over he ime of he sudy. Therefore, he soc reurs display predicable (or oradom wal behavior. The parameric ad oparameric ess were draw he same coclusio ha he soc reurs of he ASE is iefficie a he wea level. CONCLUSION This sudy examies radom wal hypohesis ad ess he wea-form efficiecy of he of he soc mare reurs of our coury Jorda, by usig daily observaios for he Amma Soc Exchage (ASE. Parameric ad oparameric ess employed for examiig he radomess of soc prices for ASE. The resuls of serial correlaio rejec he presece of radom wals i daily reurs of he ASE Idex. I addiio, he rus ess coclude ha he ASE a he wea form is iefficie. The ui roo ess also coclude he wea-form iefficiecy i soc reur series for ASE. Our fidigs are cosise wih oher similar research Freberg ad Hasso (99, Abeyseera (, Abraham (, ad Borges (. I addiio, our empirical fidig cosise wih he resuls achieved by sudies coduced i emergig mares El-Eria ad Kumar (995, Nourrredie ad Kababa (998, Mobare (, Tas ad Dursooglu (5, ad Pradha e al. (9. We propose furher sudies i he fuure o es EMH i emergig mares as does he edeavor o examie wheher mare efficiecy improved over ime i hese mares. REFERENCES Abeyseera, S. P. (. Efficie mares hypohesis ad he emergig capial mare i Sri Laa, evidece from he Colombo soc exchage A oe. Joural of Busiess Fiace ad Accouig, 8(, Abraham, S., & Alsara, S, A. (. Tesig he radom behavior ad efficiecy of he Gulf soc mares. The Fiacial Review, 7(, Borges, M. (. Efficie mare hypohesis i Europea soc mares. Europea Joural of Fiace, 6(7, Copyrigh Caadia Research & Developme Ceer of Scieces ad Culures

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