Efficient Market Hypothesis in South Africa: Evidence from Linear and Nonlinear Unit Root Tests

Andrew Phiri

Managing Global Transitions, 2015, vol. 13, issue 4 (Winter), 369-387

Abstract: This study investigates the weak form efficient market hypothesis (EMH) for five generalized stock indices in the Johannesburg Stock Exchange (JSE) using weekly data collected from 31st January 2000 to 16th December 2014. In particular, we test for weak form market efficiency using a battery of linear and nonlinear unit root testing procedures comprising of the classical augmented Dickey-Fuller (ADF) tests, the two-regime threshold autoregressive (TAR) unit root tests described in Enders and Granger (1998) as well as the three-regime unit root tests described in Bec, Salem, and Carrasco (2004). Based on our empirical analysis, we are able to demonstrate that whilst the linear unit root tests advocate for unit roots within the time series, the nonlinear unit root tests suggest that most stock indices are threshold stationary processes. These results bridge two opposing contentions obtained from previous studies by concluding that under a linear framework the JSE stock indices offer support in favour of weak form market efficiency whereas when nonlinearity is accounted for, a majority of the indices violate the weak form EMH.

Keywords: Efficient Market Hypothesis (EMH); Johannesburg Stock Exchange (JSE); South Africa; Threshold Autoregressive (TAR) model; unit roots (search for similar items in EconPapers)
JEL-codes: C22 C51 G14 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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