Weak-form efficiency test in the czech equity market

This study tests the hypothesis of the weak form of capital market efficiency in the Czech Republic. Select statistical-econometric methods were applied to time series of daily, weekly and two-week stock and indices returns over 1995 - 2001. Results from Serial Correlation, Box-Pierce, and Variance Ratio tests provide evidence that a random-walk hypothesis cannot be validated with respect to the daily returns. The weak form of efficiency on the Czech equity market was not thus proved. However, positive development toward higher efficiency was identified. Since the launching of a new price-driven market system (SPAD) on the Prague Stock Exchange - based on market makers' quotations and which has improved stock liquidity - Czech market characteristics have significantly approached those of markets traditionally considered the most efficient.

Keywords: equity market, market efficiency, random walk, market behaviour, weak-form efficiency tests, time-series analysis