Testing the Weak-Form Efficiency of the Palestinian Securities Market

Abstract

This paper examines the efficiency of the Palestine Security Exchange (PSE) at the weak-level for 35 stocks listed in the market by using daily observations of the PSE indices: Alquds index, general index, and sector indices. Parametric and nonparametric tests for examining the randomness of the PSE stock prices were utilized. The parametric tests include serialcorrelation test, and Augmented Dickey-Fuller (ADF) unit root tests. The nonparametric tests include runs test, and Phillips-Peron (PP) unit root test. The study utilized nonparametric tests for investigating the efficiency of the PSE at the weak level, especially, the results of Jarque-Bera test for normality showed that the daily returns of the PSE are not normally distributed. The serial correlation tests and the runs tests both revealed that the daily returns are inefficient at the weak-form. Also, the unit root tests (Augmented Dickey-Fuller (ADF) unit root test and Phillips-Peron (PP) unit root test) suggest the weak-form inefficiency in the return series. However, the PSE is inefficient at the weak level; as a result, this is likely to be an evidence that the prudent investor who deals with the PSE will achieve abnormal returns using historical data of stock prices, and trading volume.