Weak-Form Efficiency of the Saudi Stock Market

Abstract

This paper reports the results of a series of tests carried out to examine weak-form efficiency of the Saudi Stock Market (SSM). The paper examines whether SSM follows a martinga le process. Both traditional and newer econometric techniques were applied to test the data be tween 22 January 1994 and 31 December 2007 (inclusive) of eight industry-based indexes and a composite index. The outcomes of the ten different tests indicate mixed results. The unit root tests, Lo and MacK.inlay variance ratio, and Chen and Deo multiple variance ratio test largely cannot reject the random walk hypothesis for both daily and weekly data. With the run test, and rank- and sign-ba ed single and multiple variance ratio tests, the random walk hypothe is is mostly rejected for the daily data and some of the weekly indexes. Since the data are highly non-normal, the other tests may have low power, and the rank- and sign-based tests may be most appropriate