Lack of Reform Effect on Exchange Efficiency- Empirical Evidence from Saudi Market Index –

Abstract

As development of financial markets has been a growing issue after the financial crisis 2008, this paper has tested efficiency on one of the largest emerging securities markets in the world. It examines lack of reform impact on efficiency of Saudi stock exchange (TASI index) employing random walk hypothesis (RWH) through a battery of parametric and nonparametric tests including autocorrelations, unit root, variance ratio (VR) and Brock, Dechert, and Scheinkman (BDS) test.

The study specifically aims to test weak form efficiency before and after massive efforts implemented to reform Saudi exchange. Findings have concluded in a consensus verdict that there is no change observed in TASI index behaviour, and hence it rejected to be a weak-form efficient market. Thus, policy makers and regulators should initiate further reforms; deep regulations and reorganization development to address inefficiency.