Testing the Random Walk Hypothesis on Thinly-Traded Markets: The Case of Four African Stock Markets

Chipo Mlambo, Nicholas Biekpe and Eon Smit ()
Additional contact information
Eon Smit: University of Stellenbosch Business School

The African Finance Journal, 2003, vol. 5, issue 1, 16-35

Abstract: This paper investigates the random walk behaviour of stock returns on four African stock markets taking into account the thin-trading effect. Worthy noting is the way returns are calculated using trade-to-trade approach and adjusted to account for the thin-trading effect. The adjustment was done by dividing each trade-to-trade return with the number of days between trades. A test was performed to find if this adjustment method is justifiable. The findings were that there is a positive relationship between the absolute trade-to-trade returns and the number of days between trades. The adjusted stock returns were also tested for normality, which was rejected on all the four markets. in testing if stock returns follow a random walk, two simple traditional testing methods, that is, the serial correlation test and the runs test were used. The findings were that almost half of the stocks on each of the four markets showed significant serial correlation. There was therefore not enough evidence to accept the hypothesis of a random walk.

JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.journals.co.za/ej/ejour_finj.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:afj:journl:v:5:y:2003:i:1:p:16-35

Access Statistics for this article

More articles in The African Finance Journal from Africagrowth Institute Contact information at EDIRC.
Bibliographic data for series maintained by Kirk De Doncker ().