Abstract
Stock traders and potential and smart investors closely watch track-record of all listed
companies on stock exchanges to make sure if future rate of return could be predicted
on the basis of past data. To help the investors predict future rate of return, we analyzed
the stock market's efficiency using ARMA and GARCH models. This study focused on
the weak form efficiency of stock markets with the intention that if it is verified only then
strong forms can be tested. The results, shown in the tables and graphs, indicate that
the daily, weekly and monthly returns for KSE-100 index are stationary at their levels.
Stationarity of rates of return series goes against the weak form efficiency. It means
that future rate of return can be predicted to some extent on the basis of past data either
by ARMA models or by GARCH models or by both. We found that the Efficient Market
Hypothesis does not hold, so far, at both micro and macro levels in case of the Karachi
Stock Exchange in Pakistan. The main contribution of this study is that it tests the
Efficient Market Hypothesis for daily, weekly and monthly returns; from July 1995 to
December 2007, on the premier stock exchange of the country in context of Pakistan
that is KSE-100.
Azam Ali , Dr. Omar Farooq Saqib. (2009) Stock Market Efficiency: Evidence from Pakistan, Journal of Independent Studies and Research-Management, Social Sciences and Economics, Volume-07, Issue-2.
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