Are Emerging Financial Markets Efficient? Some Evidence From The Models Of The Ghanaian Stock Exchange

The study of stock market efficiency has been the objective of many researches across the globe since the last few decades. However, the evidence is mixed on whether the stock market is efficient. While some studies conclude that the stock markets are efficient, other studies cast doubt on this conclusion. In addition, efficiency tests in the emerging financial markets are rarely definitive in reaching a conclusion about the issue. Stock market efficiency suggests that stock prices incorporate all relevant information when that information is readily available and widely disseminated, which implies that there is no systematic way to exploit trading opportunities and acquire excess profits. This paper in an attempt to provide some empirical evidence on the efficiency of an emerging stock market that is the Ghanaian stock market, considers an overall trading period from 1989 to 2010, which is further divided into pre-crisis (1997-2001) and post-crisis (2002-2007). The paper proposes a theory-free paradigm of non-parametric tests of market efficiency of the Ghanaian stock market, consisting of two tests, which are run-test, and autocorrelation function tests (ACF), to establish a more definitive conclusion about the efficient market hypothesis (EMH) in emerging financial markets. The result of this research demonstrates that an autocorrelation on Ghanaian stock market returns exists particularly during the post-crisis period. The inefficiency of the Ghanaian stock market follows on from the violation of the necessary conditions for an efficient market with a developed financial system and also implies financial and institutional imperfections.