MARKET EFFICIENCY OF THE AMMAN STOCK MARKET: EVIDENCE FROM THE EXAMINATION OF TRADING RULES
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Published
Mar 1, 2015
Abstract
This paper tests the validity of the weak-form of the Efficient Market Hypothesis for theAmman Stock Exchange (ASE) for a full sample and three sub-periods of that spanningperiod 2000-2012. The research uses statistical analyses and moving average rulesand offers further evidence of the inefficiency of the Amman stock market whenapplying trading rules. The empirical results indicate that moving average strategiesare successful in predicting the returns for the ASE Index and outperforming the naivebuy-and-hold strategy. However, the findings for the sub-periods suggest a certaindegree of improvement toward the efficiency achieved by the Amman stock market thathas occurred from recent developments such as the introduction of new regulationsand the development of market microstructures.
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Keywords
Accounting InformationMarket efficiencyAutocorrelation testsRuns testTrading rulesMoving average strategysub-periodsAmman Stock Exchange
References
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• Moore A. B., (1962), A statistical Analysis of Common Stock Prices, PhD Thesis, University of Chicago.
• Omet, G., (1990), The Formation and Behaviour of Share Prices on Amman Financial Market, PhD thesis, University of London.
• Sweeney, R. J., (1988), “Some New Filter Tests: Methods and Results,” Journal of Financial and Quantitative Analysis, vol. 23. pp. 20-26.
• Van Horne, J. C., and Parker, G., (1967),“ The Random Walk Theory: An Empirical Test,” Financial Analysts Journal, vol. 23. no. 6. pp.87-92.
• Xu, D., (2010), An Empirical Investigation of Weak-form Efficiency in The Chinese Stock Market, PhD Thesis, University of Dundee.
• Al-Zubi, K. A., Salameh, H. M. and Hamad, H. A., (2010), “Does the Predicating Power of Stock Return in Amman Stock Exchange (ASE) Improved by Using the Artificial Neural Networks ANN,” International Research Journal of Finance and Economics, vol. 46. pp. 80-97.
• Atmeh, M., and Dobbs, I., (2006), “Technical Analysis and the Stochastic Properties of the Jordanian Stock Market Index Return,” Studies in Economics and Finance, vol. 23. no. 2. pp.119 – 140.
• Bessembinder, H and Chan, K., (1998), “Market Efficiency and the Returns to Technical Analysis,” Financial Management, vol. 27. no. 2. pp. 5-17.
• Blundell-Wignall, A., Atkinson, P. and Lee, S. H., (2008), “The Current Financial Crisis: Causes and Policy Issues,” Financial Market Trends – OECD.
• Brock, W., Lakonishok, J., and Lebaron, B., (1992), “Efficiency and inefficiency in thinly traded stock markets: Kuwait and Saudi Arabia,” Journal of Banking and Finance, vol. 16. no. 1. pp. 197-210.
• Butler, K., and Malaikah, M. (1992), “Simple Technical Trading Rules and the Stochastic Properties of Stock Returns,” Journal of Finance, vol. 47. no. 5. pp. 1731-1764.
• Civelek, M., (1991), “Stock Market Efficiency Revisited: Evidence from Amman Stock Exchange,” The Middle East Business and Economic Review, vol. 3. no. 2. pp. 27-31.
• Cootner, P., (1964), The Random Character of Stock Market Prices, Cambridge MA: MIT Press.
• Cooper, J., (1982), “World Stock Market: Some Random Walk Test,” Applied Economics, vol. 14. no. 5. pp. 512-531.
• Elbarghouthi, S., Qasim, A., and Yassin, M., (2012), “The Use of Runs Test on the Amman Stock Exchange,” International Business Research, vol. 5. no. 2. pp.159-172.
• El-Erian, M., and Kumar, M., (1995), “Emerging Equity Markets in Middle Eastern Countries,” IMF Staff Paper. vol. 42. no. 2. pp. 313-43.
• Fama, E. F., (1965), “The Behavior of Stock-Market Prices,” The Journal of Business, vol. 38. no. 1. pp.34-105.
• Fama, E. F., and Blume, M. E., (1966), “Filter Rules and Stock-Market Trading,” The Journal of Business, vol. 39. no. 1. pp.226-241.
• Fares, A. F., and Khamis, F. G., (2011), “Individual Investors’ Stock Trading Behavior at Amman Stock Exchange,” International Journal of Economics and Finance, vol. 3. no. 6. pp.128-134.
• Fifield, S. G. M., Power, D. M., and Sinclair, C. D., (2005), “An Analysis of Trading Strategies in Eleven European Stock Markets,” The European Journal of Finance, vol. 11. no. 6. pp.531-548.
• Fifield, S. G. M., Power, M. D., and Sinclair, C. D., (2008), “The Performance of Moving Average Rules in Emerging Stock Markets,” Applied Financial Economics, vol. 18. no. 19. pp.1515-1532.
• Gunasekarage, A., and Power, D., (2001), “The Profitability of Moving Average Trading Rules in South Asian Stock Markets,” Emerging Markets Review, vol. 2. no . 1. pp.17-33.
• Gore, Ch., (2010), “The Global Recession of 2009 in a Long-term Development perspective,” Journal of International Development, vol. 22. no. 6. pp. 714-738.
• Huang, Y. S., (1995), “The Trading Performance of Filter Rules on the Taiwan Stock Exchange,” Applied Financial Economics, vol. 5. no. 6. pp. 391-395.
• Hudson, R., Dempsey, M., and Keasey, K., (1996), “A Note on The Weak Form Efficiency of Capital Markets; The Application of Simple Technical Trading
• Rules to UK Stock Prices - 1935 to 1994,” Journal of Banking and Finance, vol. 20. no. 6. pp.1121-1132.
• Jaradat, M., and Al-Zeaud, H., (2011), “Testing the Weak-Form Efficiency of Amman Stock Exchange,” International Research Journal of Finance and Economics, vol. 65. pp. 93-97.
• Jordanian Securities Commission (1997), “The Securities Law No. 23” Amended later by Securities Law of 2002, Amman.
• Karemara, D., Ojah, K., and Cole, J., (1999), “Random Walks and Market Efficiency Tests: Evidence from Emerging Equity Markets,” Review of Quantitative Finance and Accounting, vol. 13. no. 2. pp.171-188.
• Kendall, M., (1953), “The Analysis of Economic Time-Series-Part I: Prices,” Journal of the Royal Statistical Society, Series A (General), vol. 116. no. 1. pp. 11-34.
• Lagorde-Segotand, T. and Lucey, b., (2005), “Stock Market Predictability in the MENA, Evidence from New Variance Ration Tests and Technical Trade Analysis,” IIIS Discussion Paper, no. 92. Trinity College Dublin.
• Lesmond, D. A., (2005), “Liquidity of Emerging Markets”, Journal of Financial Economics, vol. 77. no. 2. pp. 411-452.
• Lim, K. P. and Brooks, R. D., (2011), “The Evolution of Stock Market Efficiency over Time: A Survey of the Empirical Literature”, Journal of Economic Surveys, vol. 25, no.1. pp. 69–108.
• Moore A. B., (1962), A statistical Analysis of Common Stock Prices, PhD Thesis, University of Chicago.
• Omet, G., (1990), The Formation and Behaviour of Share Prices on Amman Financial Market, PhD thesis, University of London.
• Sweeney, R. J., (1988), “Some New Filter Tests: Methods and Results,” Journal of Financial and Quantitative Analysis, vol. 23. pp. 20-26.
• Van Horne, J. C., and Parker, G., (1967),“ The Random Walk Theory: An Empirical Test,” Financial Analysts Journal, vol. 23. no. 6. pp.87-92.
• Xu, D., (2010), An Empirical Investigation of Weak-form Efficiency in The Chinese Stock Market, PhD Thesis, University of Dundee.
How to Cite
Almujamed, Hesham I., Ghassan H. Mardini, and Mahmoud M Salama. 2015. “MARKET EFFICIENCY OF THE AMMAN STOCK MARKET: EVIDENCE FROM THE EXAMINATION OF TRADING RULES”. Studies in Business and Economics 18 (1). https://doi.org/10.29117/sbe.2015.0083.
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Articles