The Random Walk Hypothesis for BRICS and Pakistan: New Evidence Based on Variance Ratio Tests

Ume Salma Akbar
PhD candidate and faculty member at Sukkur IBA University Sukkur, Sindh, Pakistan.

Niaz Ahmed Bhutto
Professor, Sukkur IBA University Sukkur, Sindh, Pakistan

Agha Jahanzeb
Assistant Professor, Sukkur IBA University Sindh, Pakistan

This study attempts to re-examine the random walk hypothesis for BRICS-P
countries; Brazil, Russia, India, China, South Africa and Pakistan by using daily
stock returns ranging from January 2000 to March 2017. The hypothesis is tested
through Variance Ratio Tests including the conventional Lo- MacKinlay, Chow
Denning, new Wright’s rank, Sign tests, Hang and Kim sub sampling tests. Results
under all individual and joint testing methods show that the stock prices in sample
countries do not follow the random walk. These findings indicate intertemporal
predictability that relates with investors’ astute. This study recommends investors
to focus more to capture risk-adjusted abnormal returns and to devise their trading
strategies accordingly.

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