TESTING THE WEAK FORM EFFICIENCY OF KSE 100 INDEX

Abstract

This research is an attempt to test the market efficiency of KSE 100 index under the
principle of efficient market hypothesis and tests its weak form, in a time frame of 10
years (2000-2010) on the basis of monthly & daily data. The research is significant
because most of the earlier researches have either tested the market efficiency of few
countries and then carried out a comparison of those markets or tested the same market
on the basis of yearly or monthly data but this research will provide new insights about
the efficiency of the market on monthly basis. If the stock market is efficient than it
means that in such a market the stock prices reflect all available information and no one
can use this information to make abnormal profits by predicting the future prices on the
basis of the past available information. In other words no one can trick the market and
earn abnormal returns consistently and if anytime it(abnormal returns) does comes
than it is only because of the luck. The reality that market is efficient is important for the
overall economy of the country because the stock market facilitates the distribution of
scarce resources from those who saves money to those who need money, through price
changes. In Pakistan the security markets are significant because they truly reflect the
economic position of the country because it has representation of all the sectors of the
economy. Keeping this in mind testing the market efficiency in Pakistan is very
significant as it reflects true image of the economy.