The Johannesburg Stock Exchange market was tested for the existence of the random walk hypothesis using All Share Index (ALSI) and time series data for the period between 2000 and 2011. The traditionally used methods, the unit root tests and autocorrelation test were employed first and they all confirmed that during the period under consideration, the JSE price index followed the random walk process. In addition, the ARIMA model was built and it was found that the ARIMA ( 1, 1, 1) was the model that best fitted the data in question. Furthermore, residual tests to help determine whether the residuals of the estimated equation show random walk process in the series were done. It was found that the ALSI resembles series that follow random walk hypothesis with strong evidence of RWH indicated in the conducted forecasting tests which showed vast variance between forecasted values and actual indicating little or no forecasting strength in the series. To further validate the findings in this research, the variance ratio test was conducted under heteroscedasticity and it also strongly corroborated that the existence of a random walk process cannot be rejected in the JSE. It was concluded that since the returns follow the random walk hypothesis, it can be said that JSE is efficient in the weak form level of the EMH and therefore opportunities of making excess returns based on out- performing the market is ruled out and is merely a game of chance. In other words, it will be of no use to choose stocks based on information about recent trends in stock prices.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:ufh/vital:11461 |
| Date | January 2013 |
| Creators | Chitenderu, Tafadzwa Thelmah |
| Publisher | University of Fort Hare, Faculty of Management & Commerce |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis, Masters, M Com |
| Format | 106 leaves; 30 cm, pdf |
| Rights | University of Fort Hare |
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