Efficient market hypothesis: evidence from a small open-economy

Abstract

This article studies the efficient market hypothesis for the Istanbul Stock Exchange National 100 (ISEN 100) price index within the Lumsdaine and Papell two structural breaks unit root test framework. The main finding of the article shows that the ISEN 100 index is characterized by a unit root with two structural breaks, which is consistent with the efficient market hypothesis. In addition, the article applies the augmented Dickey–Fuller test, runs test and the variance-ratio test to test the weak-form efficiency of the ISEN 100. The analyses are repeated for three sub-periods delineated in view of the endogenously determined break points.

Acknowledgements

The author acknowledges helpful comments from an anonymous referee. I would also like to thank Prof. Dr Hasan Olgun for his encouragement and comments on an earlier draft.

Notes

¹ We first estimate Equation 1 with k _max = 12. We select k = 12 if the t-statistic that corresponds to α₁₂ is ≥ 1.645 in absolute value. If the t-statistic is < 1.645 in absolute value, we set k = 11. We continue in this fashion until we obtain a significant t-statistic. If no t-statistic is significant, we select k = 0.