An emprical analysis of weak-form efficiency of Dar es Salaam Stock Exchange

Abstract

This study examines the empirical evidence for efficient market hypothesis in the Dar es Salaam Stock Exchange (DSE). The daily closing stock prices of the market index (All share Index-DSEI) were used, covering the sample period from January 2009 to March 2015. All data were extracted from Dar Es Salaam Stock Exchange (DSE), excluding public holidays and non-trading days. To examine the weak-form efficiency hypothesis, the study used four different statistical tests: serial correlation test-The Ljung-Box test, Unit root tests, non-parametric runs test and the variance ratio test. The results of all four statistical tests employed showed that the daily returns series did not behave randomly for the sample period investigated and hence it was concluded that DSE is not a weak form efficient market. Inefficiency of the market (DSE) general implies that trading strategy such as the technical analysis can be valuable in the market taking into consideration of the other factors. The study recommended that other studies to be conducted using individual shares. This will help in understanding the efficiency of individual stocks as well as the possibility of applying some of trading strategy on individual shares.

Keywords: Stock market, Weak form efficiency, Stock Exchange, efficiency tests, Dar es Salaam stock exchange, Unit root, Variance ratio