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

15 Pages Posted: 4 Jun 2007

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

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Abstract

Using a nonparametric 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). After correcting for measurement biases caused by thin and infrequent trading prevalent in nascent and small stock markets, we cannot reject the random walk hypothesis for the MENA markets. We conclude that a nonparametric VR test is appropriate for emerging stock markets, and argue that our findings can reconcile previously contradictory results regarding the efficiency of MENA markets.

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. The Financial Review, Vol. 42, No. 2, pp. 303-317, May 2007. Available at SSRN: https://ssrn.com/abstract=990908 or http://dx.doi.org/10.1111/j.1540-6288.2007.00173.x

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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