Testing the Weak-Form Efficiency of the United Arab Emirates Stock Market

Abstract:     
This study examines the behavior of stock prices in United Arab Emirates (UAE) stock market. The data consist of the daily prices of the 43 stocks included in the Emirates market index covering the period commencing October 2, 2001 through September 1, 2003. The returns of all the 43 sample stocks do not follow the normal distribution, so the study utilizes only the nonparametric runs to test for randomness. The results reveal that the returns of 40 stocks out of the 43 are random at a 5% level of significance. Hence, the empirical study supports the weak-form EMH of UAE stock market.

These results are surprising and challenging to traditional views because the UAE stock market is newly developed and just recently became official with sound regulations. Furthermore, the market is very small and thin suffering from infrequent trading. However, the results of the paper may be attributed to the essential steps that have already been taken by the authorities to improve the operating and pricing efficiency of UAE stock market during the last two years. The UAE stock market needs to be studied further with longer stock price time series and other tests to test the efficiency of the market.

Keywords: UAE stock market, Weak-form EMH, Runs test

JEL Classifications: G14

Accepted Paper Series