Adaptive market hypothesis: Evidence from Pakistan Stock Exchange
Abstract/Description
This study examines the presence of the Adaptive Market Hypothesis (AMH) on the Pakistan Stock Exchange (PSX) using linear and nonlinear models to assess the varying degree of the PSX. The study covers a sample period from 2000 to 2022 and uses fixed-length windows of two years to assess how returns change over time. The Lo-McKinlay Variance Ratio Test and the Brock, Dechert, and Scheinkman (BDS) test are used to detect the presence of non-randomness in the PSX daily returns. The study finds that the AMH can explain the behavior of investors on the PSX more comprehensively than the Efficient Market Hypothesis (EMH), suggesting that the stock market in Pakistan is not efficient and that market participants are not always rational. The study has implications for investment strategies, risk management, and market regulations in emerging and frontier markets such as Pakistan.
Keywords
Adaptive Market Hypothesis, Investor Behavior, Stock Return Predictability, Market Efficiency, Emerging Markets
Track
Finance
Session Number/Theme
Session 1B: Finance
Session Chair
Dr. Sana Tauseef ; Dr. Mohsin Khawaja
Start Date/Time
26-5-2023 2:45 PM
End Date/Time
26-5-2023 4:45 PM
Location
MCS-4, Aman-CED, First Floor, Institute of Business Administration, Karachi
Recommended Citation
Jamil, M. (2023). Adaptive market hypothesis: Evidence from Pakistan Stock Exchange. 3rd IBA SBS International Conference 2024. Retrieved from https://ir.iba.edu.pk/sbsic/2023/program/9
COinS
Adaptive market hypothesis: Evidence from Pakistan Stock Exchange
MCS-4, Aman-CED, First Floor, Institute of Business Administration, Karachi
This study examines the presence of the Adaptive Market Hypothesis (AMH) on the Pakistan Stock Exchange (PSX) using linear and nonlinear models to assess the varying degree of the PSX. The study covers a sample period from 2000 to 2022 and uses fixed-length windows of two years to assess how returns change over time. The Lo-McKinlay Variance Ratio Test and the Brock, Dechert, and Scheinkman (BDS) test are used to detect the presence of non-randomness in the PSX daily returns. The study finds that the AMH can explain the behavior of investors on the PSX more comprehensively than the Efficient Market Hypothesis (EMH), suggesting that the stock market in Pakistan is not efficient and that market participants are not always rational. The study has implications for investment strategies, risk management, and market regulations in emerging and frontier markets such as Pakistan.
