Evolving market efficiency in Istanbul Stock Exchange

Abstract

The main purpose of this study is testing weak-form market efficiency hypothesis in ISE using the broadest sample and time series coverage that have been ever used. We use stock prices data of all companies that constitute ISE-100 index with time series covering 1990-2002 years. We test not only whether ISE is efficient in the weak-form sense, but also whether and how it is becoming more efficient. For this purpose, we us generalized auto-regressive conditional heteroscedastic (GARCH) model. Our research findings show that the stock returns of the individual stocks that constitute 65% of the sample space do not show random walk behavior. However, remaining part of the individual stocks exhibit significant random walk behavior. The findings for the ISE-100 national index provide support to the evolving market efficiency hypothesis. While ISE-100 index do not follow random walk for the initial period of the analysis, it gains random-walk behavior in the second period. The discriminant analysis between stocks whose returns do not follow random walk behavior and those whose returns follow random walk behavior do not significantly discriminate them.