Academic journal article Academy of Accounting and Financial Studies Journal

The Efficiency of the Russian Stock Market: A Revisit of the Random Walk Hypothesis

Academic journal article Academy of Accounting and Financial Studies Journal

The Efficiency of the Russian Stock Market: A Revisit of the Random Walk Hypothesis

Article excerpt


The Russia economy is expected to be one of fastest growing economies in terms of economic development. According to a report issued by Sberbank CIB, one of the top investment banks in Russia, it is estimated that the Russian consumer market will be the largest in Europe by 2020 and the fourth largest in the world (Jason, 2013). In addition, the Russian stock market will have significant effects on Russian economic development due to the stock market's ability to facilitate the efficient redistribution of capital between the different segments of the Russian economy.

In order to examine the efficiency of the Russian stock market, this study analyzes the daily index returns from 2003 to 2012 by testing the random walk hypothesis to determine whether the Russian stock market is a weak form efficient. The Russian stock market has received less attention in the academic literature than other emerging markets. Our research intends to fill this void.

The remainder of the paper is structured as follows. In section 2, we discuss a brief review of the literature. In section 3, we present data, and in section 4 we discuss the methodology adopted for our paper. Our main empirical results are presented in section 5. Section 6 offers our concluding remarks.


Fama (1970) argued that stock prices will always incorporate the available internal and external information about the company in the capital markets. Therefore, the Efficient Market Hypothesis (EMH) assumes that stock prices react quickly to newly available information, and as a result, current prices reflect both intrinsic and extrinsic prices. Fama (1970), characterize the Efficient Market Hypothesis into three forms: strong form, semi-strong efficiency and weak efficiency.

The weak form efficiency supports the hypothesis that the current price of stocks incorporates all the information from past stock prices. In an efficient market, investors cannot use past stock prices to earn abnormal returns which makes technical analysis useless (Fama, 1970).

Several studies have analyzed the weak form efficiency based on Fama's argument. For instance, Hamid, Muhammad, Syad, and Rana (2010), studied Pakistan, India, SriLanka, China, Korea, Hong Kong, Indonesia, and the Malaysian stock market's from 2004-2009. The researchers used auto-correlation, runs test, unit root test and variance ratio. They found that all markets were weak form inefficient during the testing period.

Saif Sadiqui and P.K.Gupta (2010) evaluated the Indian stock market from 2000-2008. The study used the runs test, K-S Test, auto-correlation, auto -regression, and ARIMA tests. The results from their study indicated that the Indian stock market does not exhibit weak form efficiency. In a prior study Abrosimova, Natalia, Dissanaike, Gishan and Linowski, Dirk, (2002), used daily and monthly data to study the Russian equity market from 1995-2001. Using the ARIMA and GARCH models, as well as Unit Root Test, auto-correlation and variance ratio tests, their findings indicated that the random walk hypothesis could not be rejected for the monthly data; however, it could be rejected for daily data. In a more recent study, Francesco Guidi, Gupta and Maheshwari (2010), examined the equity markets in Poland, Hungary, the Czech Republic, Slovakia, Romania, Bulgaria, and Slovenia. Covering the periods from 1999-2009, and employing autocorrelation, runs test, variance ratio, and GARCH-M, they found that Central and Eastern Europe countries are not weak form efficient.

The next form of market efficiency is semi-strong efficiency, which states that all public information is already embedded into the value of the security. In a semi-strong efficient market, fundamental analysis, based on public information, is useless (Fama, 1970). One of the studies that tested the semi-strong form is Guttler, Meurer, Da Silva (2007). They examined whether the Brazilian stock market is efficient in reacting to new information surrounding public macroeconomic data announcements. …

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