Abstract:
Securities market are an important part of any economy when it comes to the
distribution of scarce resources as it acts as an intermediary of capital distribution
from savers to lenders through the mechanism of price. In an efficient market, there
are many participants whose actions decide the price, which is already a
representation of the intrinsic value as all the information is already incorporated in
the shares prices, and so the prices at any future time would be moving randomly.
In Pakistan, securities market is one with high sensitivity due to political turmoil,
expectations and insider information. In such a situation it is important to check the
efficiency of the market. This paper examines this relation in the existence of the
random walk hypothesis.
The data has been selected over a period of three years from four companies listed
on the KSE-100 Index. The total number of observations for the daily stock returns is
2625. The observations have been treated and the statistical tool ANOVA is used to
quantify the data.
The results show that the random walk hypothesis holds true for the daily returns. No
“day of the week effect” is present. Thus the random walk theory holds true for the
Karachi Stock Market, and so it can be termed as an efficient market.
