ROLE OF HURST EXPONENT IN PREDICTION OF MARKET EFFICIENCY IN KSE-100 INDEX

Syeda Tayyaba Ijaz () and Rabia Komal ()
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Syeda Tayyaba Ijaz: Department of Business Administration, International Islamic University Islamabad
Rabia Komal: Pakistan Institute of Development Economics (PIDE), Islamabad

IBT Journal of Business Studies (JBS), 2015, vol. 11, issue 2, 41-54

Abstract: Purpose This paper aims to investigate the Efficient Market Hypothesis EMH and validity of Random Walk Model RWM in KSE100 index starting from 1992 till 2014 taking monthly averages of index.Methodology Main focus of the paper is to evaluate the efficiency in KSE100 index with respect to application of Hurst Exponent and Rescaled Ranged Statistics.Although many researchers have previously explained the working of EMH in KSE100 index but rarely anyone has explained it using Hurst Exponent Analysis on over all longest period since the establishment of KSE100 index Feb, 1992 to Dec, 2014.Annual Rescaled Range Statistics are also calculated to explain the good or bad years according to Estimated Hurst Statistics.All statistical analysis has been performed on Gretl which gives the good grasp over Hurst Exponent Analysis.Results The results revealed that overall KSE100 index is not following the random walk and is not performing efficiently, and yearly break up shows that market was persistent in few years but mostly it was antipersistent longrun memory prevails.Practical Implication Implementing Hurst Exponent Analysis enabled us to get rigorous result about performance of the Pakistan stock market in terms of efficiency that implied chances of arbitrage opportunity prevail significantly.

Keywords: Efficient Market hypothesis; Random Walk; KSE-100 index; Hurst Exponent Analysis; De-trended Functional Analysis (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aib:ibtjbs:v:11:y:2015:i:2:p:41-54

DOI: 10.46745/ilma.ibtjbs.2015.112.4

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