Weak form efficiency tests in Istanbul Stock Exchange

Abstract

Capital markets play an important role in allocating the nation's capital resources. One way of evaluating their efficiency in this process is to examine the behavior of share prices. Efficient Market Hypothesis suggests that if this markets are efficient in weak sense then the resulting prices should change over time in a way such that past changes in prices should provide no clues to future changes, otherwise there would be opportunities for making profit and the markets would not be efficient. This study tests the weak form efficiency of the Stock Exchange. The data is composed of daily adjusted prices of twenty major stocks and covers the period January 1988 and December 1991. In the study, widely statistical tests and trade rules test were applied, randomness and distribution of daily prices Istanbul closing between accepted Independence, were tested statistically, while trade rules tests were used to find whether some mechanical trading rules (filtering) consistently and significantly profitable over a naive buy-and-hold policy. All tests used were against the weak form efficiency of the Istanbul Stock Exchange. For all of the sample stocks, it was found that people can beat the market by using appropriate filter rules.