Testing Weak Form Efficiency of Muscat Security Market - Case Study Example

Finance and accounting al Affiliation) Methodology Different methods could be used in the study and the research. The main method that was applied in the particular research was the use of auto- correlation. The data collection strategy was used to determine and also to identify the effects of market index and also those of individual companies that were selected for the study (Butler, Kirt and Malaikah, 1992). The study was aimed to the selected sectors of Muscat Security Market. The use of the method of data collection, auto correlation which showed the similarities between the observation and the time lag that was used in the study brought out the information that was needed to attain the market index. The method led to the getting of the repeating patterns in the market that had detailed information on the finances of the companies that was needed for analysis. The method allowed for the attaining of accurate data for the period that was used in the study allowed for better comparison (Butler, Kirt and Malaikah, 1992). The inaccuracy could be resulted by the improvements and recruitments that may have come after the references were recorded. The hypothesis that were formulated for the study included that the companies from MSM follows a normal distribution in their indexes and also in the individual companies’ stock. Hypothesis on the security of the markets in relation to the information distribution was also made stating that there is no auto-correlation in closing value of MSM-30 Index which makes the value a weak form of efficiency. The sample size that was used in the research was widely spread through different sectors of the economy which included banking, manufacturing and also the service sector. The collection of the data was done for a period of five years, starting from the year 2009 to 14th of December 2014. The observations that was done for the five years was for both market index and individual stock values from the security market. The analysis was done through the use of standard errors, co efficient and also the use of t-ratio. The analysis also determined the p-value for the companies that were studied(Butler, Kirt and Malaikah, 1992). The analysis that was done was through a software called Gretl and this enabled the bringing out clearly of the variables that would determine the efficiency in the markets. Result discussion In the study the fundamental property used in the auto correlation was symmetric. The use in the study makes the method an even function. The autocorrelation that is used in the study was continuous and reaches its peak in the origin. From the use of the method in the study, it is evident that the vast majority of efficient market research to date has focused on the major Muscat securities market and fewer of researchers have examined the developing and less developed countries market. The markets have depicted a trend that the efficiency that is in the market is weak. Besides, very few of study have been performed on Muscat Security Market (MSM). This study seeks evidence supporting the existence of at least weak form efficiency of the MSM and would contribute to the few existing literature on weak form efficiency along with tools and results that have been discussed. Autocorrelation was a periodic function with the same period. The co efficient that was got in the study was a negative value of -0.417769. The depicted value in the research brought the conclusion that the market was inefficient. The standard error of the study was a positive value of 0.737811. In the period 2009 to 2014 the t-ration that was obtained in the study was a negative value of -0.5662. The efficiency of the market can also be told by the p-value of the study that was carried out. The p-value of the study came to 0. The inefficiency in the market as per the study is brought by information that is passed from the invertors in the market. The performance of risk volatility in the market has shown that the market is inefficient. The volatility is seen in the test statistic that is done using the p-value. The efficiency in the market in the study could not be proven without doubt as it was earlier done (Butler, Kirt and Malaikah, 1992). The doubt in the prof has much come about due to the change in the behaviors in the market. The volatility and lack of the direct is due to the academic view on the finance. This is also due to the evolvement in the market as the time the hypothesis on the efficiency in the market. The inefficiency in the market is due to the difference in the performance of the investments and the investors. The way that they handle the activities in the market shows that there is auto-correlation in closing value of MSM-30 Index and this at times make the market not experience weak form of efficiency. The formulation on the hypothesis on the efficiency in the market does not bring the fact that there were not certainties on the future. The study also brings the fact that the companies that were taken into consideration makes the market to be practically inefficient for the investments that can be brought by the individual investors. Autocorrelation done to the statistics brings the joint hypothesis that in the companies, there is no possibility in the proving of the efficiency of the market (Butler, Kirt and Malaikah, 1992). The method does not bring out the test on the efficiency of the market in the determination of the prices in the market to bring out the efficiency. The study brings the conclusion through the research that the rest results of weak of efficiency in the Muscat stock market compare favorably with those performed on other stock markets in emerging countries. It was found that the Muscat stock exchange exhibited efficiency in the weak form. The investors and the researchers according to the study have much disputed the efficiency in the market both theoretically and empirically. Through the years there have been revelations in Muscat Securities The study brings out the fact that this revelation has a negative impact on the claims that markets are efficient but in the real sense the behaviors that are in the market makes it inefficient. Muscat stock market found out that whereas some of the markets studied exhibited the presence of weak form of market efficiency, it was not applicable for the stock market of all the companies that was include in the study. It was thus concluded through the correlation that the researchers the possibility of making a profit by trading on historical stock prices cannot be entirely ruled out. The results of their research point towards the fact that the pricing efficiency of any market depends on the level of equity market development as well as regulatory framework conductive of transparent corporate governance (Butler, Kirt and Malaikah, 1992). The weak markets can be estimated and also the efficiency could not be got well. The period of the study was much efficient in the study since it was done at the time when there was no deterioration in the market. The lack of efficiency in the market are due to the timely action of the investors prices of the different stocks adjust quickly in order to reflect the new information that is available in the market. So the efficiency in the market hypothesis says that no investor can actually beat the market by generating abnormal returns. The results are brought about by the circulation of resources and the information in the market to make the information that is brought to the investors. There have been models that have been brought about to test the weak form of efficiency of the market. The first model that is used in the determination of the efficiency brings out the average returns of security. The model reflects the large sample of the returns, the ones that are expected and also a stock equal to the actual returns. The excess of the returns as from the model is regarded as null. The next return of a security is possible to be regarded to be positive instead of it being regarded as zero (Butler, Kirt and Malaikah, 1992). The difference between the two models is that when the stock is increasing overtime it will give a positivity of the risk involved in the capital investment .It is to be mentioned that if the expected returns of the stock are zero then the return sequence follows a second model. The weak form of inefficiency leads to controversial in the emerging markets. The reason is due to the problem in trading and the manipulation of the stock market by the efficient markets and also considered less efficient. There is also state that the returns of the stock market are predictable when comparing with the emerging stock market with the developed stock market (Butler, Kirt and Malaikah, 1992). Few empirical work has been carried out in determining the weak form of efficiency in Muscat Security. The findings that were got from the research that was carried on the companies led to the rejection of the weak form of the market efficiency. The samples that were also taken predicted the inefficiency of the Osman stock. Behavioral finance in the determination on the efficiency brings out the hyperbolic discounting. Muscat Security Market is weak form efficient, therefore all companies listed from three sectors, industrial, service and financial on MSM are population and MSM-30 index is the sample of research. Conclusion The tests that were done to the results that were got from the companies reveal that there are large variations that occurs between the index value and that that is in the 30 companies that are included in the study and this during the period that the research was carried out brings out the fact that the market is inefficient. The volatility of the returns in the individual companies are generally higher. The analysis by the chi-square brings out the real statistics of the company as the analysis goes into the details to the finding of the reasons that have led to the variation of the index values of the companies. Additional analysis of the other values also adds more value to the determination of the indices. The correlation test also showed the negative and weak result between the index value and the MSM 30 companies which resulted in the weak form of efficiency for Muscat Security Market. The selection that is done in the As the study is selected for the period for 5 years hence it will be difficult to judge the relationship between the index value and the MSM 30 companies. In order to enhance further research a period of 10 years study would be required in order to determine the behavior of the market .Moreover, more statistical tools and tests should be used in relation with some trading rules in order to examine whether any investment strategy is useful in achieving positive relations with the index value and the MSM 30 index. From the observation of the analysis that is done on the research, implementing the nonlinear tests can be a rich area of research in order to detect the weak form of efficiency in the Muscat Security Market. The indexes are to be improved also with the minimizing of the costs. The information that is needed in the economy are well circulated to the investors that enables them to invest wisely with the investments considering the resources and the factors that they consider in the buying and selling. The market efficiency is much considered. Perfect market is composed of efficient capital market that is used in the conduction and also the planning of the activities of the different companies. The perfect market make formations available simultaneously and that their availability is free of cost that uses the information in their determination of prices. The relationships between the indexes are important. There was indication of a very little relationship that is between the index value and MSM 30 companies. The handling of information and resources by the investors is important. The way that they handle the activities in the market shows that there is auto-correlation in closing value of MSM-30 Index and this at times make the market not experience weak form of efficiency. Recommendations The method that was used in the study was inefficient since the collection did not cover much of the factors in the companies and more of research methods could have been included in the collection of the statistics and also their analysis. Advancement in the method used to gather data on the financial matters and the market is needed. Investment strategy should be improved in the company’s such that the information that is needed for the investment and improve the efficiency in the market. Moreover, more statistical tools and tests should be used in relation with some trading rules in order to examine whether any investment strategy is useful in achieving positive relations with the index value and the MSM 30 index. The field that was used in the carrying out of the research was not much efficient and more of the companies should be included in the research as this will bring more accuracy in the data that is collected for the analysis. Nonlinear tests also are recommended in the analysis of the data as this will lead to the detailing of the analysis that is done to the statistics. Muscat can also apply the theory of efficient markets for the calculation of the damages that occur in the market. Reference Butler, Kirt C., and S. J. Malaikah, 1992, Efficiency and Inefficiency in Thinly Traded Stock Markets: Kuwait and Saudi Arabia, Journal of Banking and Finance 16, 197–210. Read More