Testing Random Walk Hypothesis for Dhaka Stock Exchange

Abstract

The primary objective of this study is to test the weak form of market efficiency of the Dhaka Stock Exchange (DSE). A random walk test is performed for the weak form of efficiency.  The daily returns of the individual shares listed under the DSE-20 index over the period of January 1999 to December 2009 are considered. Dhaka stock exchange is well known as a growing emerging market. The returns were tested using the Dickey-Fuller unit root test and a nonparametric test, the Runs test. In order to test the weak form efficiency hypothesis, we analyzed runs tests. The Dickey-Fuller unit root test is a popular test for testing market efficiency. The run test is also used as a powerful tool to test random walks in the stock market. It is concluded that both the results of Dickey-Fuller tests and the results of run tests are similar and rejected random walk in DSE.