An evaluation of efficiency of Tehran stock exchange

Abstract

The purpose of this study is to test the applicability of Random Walk Hypothesis and thus, the weak form efficiency of Tehran Stock Exchange (TSE).The investigation was based on the data representing the stock price changes of a cross section of forty-nine companies selected of random out of 420 companies listed at TSE. newlineThe periodicity of data is 21th March 1989 to 11th August 2008. newlineThe applicability of weak form market efficiency was examined with the help of five different tests viz. Mean value, Normality of distribution, Autocorrelation, Runs test and Variance ratio test. newlineThe results show that for shorter time lags measured in days, there is inter-dependence of stock market prices rejecting RWH. However, for longer time lags measured in terms of weeks and months, we find support for independence of stock market prices. Independence of stock market prices for longer time lags is natural and acceptable. However it is the preponderance of inter-dependence of stock market prices during shorter intervals that highlights the inefficiency of TSE in weak form.