A New Variance Ratio Test of Random Walk in Emerging Markets: A Revisit

28 Pages Posted: 29 Aug 2006

See all articles by Osamah M. Al-Khazali

Osamah M. Al-Khazali

American University of Sharjah - School of Business and Management

David K. Ding

Singapore Management University - Lee Kong Chian School of Business

Chong Soo Pyun

University of Memphis

Multiple version iconThere are 3 versions of this paper

Abstract

Using Wright's (2000) new non-parametric variance-ratio (VR) test, we revisit the empirical validity of the random walk hypothesis in eight emerging markets in the Middle East and North Africa (MENA): Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Saudi Arabia, and Tunisia. We show that: (i) while returns from raw data do not follow a random walk, one cannot reject the random walk hypothesis, particularly when the data have not been corrected to remove any measurement bias arising from thin and infrequent trading prevalent in nascent and small stock markets; (ii) Wright's non-parametric VR is more appropriate for emerging stock markets; and (iii) our findings can explain the contradictory results in the literature regarding the relative efficiency of emerging markets in MENA.

Keywords: Emerging stock markets, Random walk hypothesis, Middle East and North Africa (MENA) stock markets

JEL Classification: F36, G14, G15

Suggested Citation

Al-Khazali, Osamah M. and Ding, David K. and Pyun, Chong Soo, A New Variance Ratio Test of Random Walk in Emerging Markets: A Revisit. Financial Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=926908

Osamah M. Al-Khazali

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

David K. Ding (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore
+65 6828-0245 (Phone)

Chong Soo Pyun

University of Memphis ( email )

Memphis, TN 38152
Memphis, TN usa 38152-3370
United States

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