Tests of weak form efficiency in İstanbul Stock Exchange

Abstract

The Weak Form Efficient Market Hypothesis claims that current stock, prices fully reflect all stock market information, including the historical sequence of past prices, price changes, and volume data. Therefore the information in past prices or returns is not useful or relevant in achieving excess returns in the future. In this study, the weak form efficiency tests are applied to the Istanbul Stock Exchange first common stock market's adjusted-price data. The period covered is in between January 10, 1986 and October 28, 1988. There have been two groups of weak form tests recommended by the literature: statistical tests of independence (autocorrelation and runs tests) and tests of trading rules (filter rules). For the Istanbul Stock Exchange, these tests generated mixed results. The runs and autocorrelation tests could not refute the weak form efficiency fully. However, the results of the filter tests showed that an individual could have beaten the market especially for some of the stocks. These large discrepancies between the buy-and-hold and filter returns are supporting the views which are against the efficiency of Istanbul Stock Exchange.