The Random Walk Hypothesis for the Zimbabwe Stock Exchange: January 1998-November 2006
Tafirenyika Sunde and James Zivanomoyo
DOI : 10.3844/jssp.2008.216.221
Journal of Social Sciences
Volume 4, Issue 3
The main intention of this study was to investigate, using monthly data, whether prices in the Zimbabwe Stock Exchange (ZSE) follow a random-walk process as required for there to be market efficiency. The study applied the unit root tests to establish if the ZSE followed a random walk or not. If the ZSE follows a random walk it is said to be efficient and therefore managers of companies and investment specialists cannot take advantage of it to make unnecessarily huge profits. The ZSE was chosen because it represents a typical emerging stock market in Sub-Saharan Africa. The study used the Augmented-Dickey Fuller (ADF) tests with a lag length that was necessary to remove autocorrelation from residuals. Using monthly data from January 1998-November 2006 we found that the ZSE did not follow a random walk and therefore was not efficient in the weak form. This meant that past prices had an influence in the determination of future prices and this provided an opportunity for out-performance by skillful financial managers and investment specialists. During the period studied investment analysts and managers of companies were able to take advantage of these investment opportunities to make abnormal returns from the ZSE. The current study helped to corroborate the findings of a similar previous study that was carried out on the Zimbabwean economy for the period 1990-1998.
© 2008 Tafirenyika Sunde and James Zivanomoyo. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.