An empirical analysis on the weak form market efficiency in the Bangladeshi pharmaceutical industry- A case study of Renata Ltd

Ehsan, Zaeem-Al (2021): An empirical analysis on the weak form market efficiency in the Bangladeshi pharmaceutical industry- A case study of Renata Ltd.

Abstract

The paper aims to assess the market efficiency of Renata Ltd in the weak form by analyzing monthly returns ranging from December 2007 to April 2021. Past literature on the same topic uncovered the non-existence of efficiency in the weak form in the Dhaka Stock Exchange. Initially, a descriptive analysis was done using the 4 moments of Renata Ltd and the Dhaka Stock Exchange broad market exchange. A graphical analysis using P-P and Q-Q plots rejected the assumption that the returns of Renata Ltd come from a normal distribution. This was further supported by Jarque-Bera and Shapiro-Wilk tests of normality which also rejects the null hypothesis of the returns of Renata Ltd having come from a normal distribution. Graphical tests of autocorrelation were made to uncover the presence of any correlation between returns of Renata Ltd, which was found to not exist. Thus, we can assert that there is no presence of serial correlation, and therefore, the market is efficient in the weak form according to the graphical analysis of correlograms. To quantifiably test the presence of a random walk effect, the Durbin-Watson, Breusch Godfrey, Portmanteau, runs, Augmented Dickey-Fuller (ADF) and variance root tests were undertaken. All tests support the fact that Renata Ltd.’s return does follow a random-walk process, implying the existence of weak form market efficiency.

• Item Type: MPRA Paper
• Language: English
• Keywords: EMH, random-walk, ADF, Breusch Godfrey, P-P, Durbin Watson, Portmanteau, unit root, Jarque-Bera, Shapiro-Wilk, Q-Q,variance-root, structural break
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; G - Financial Economics > G0 - General > G01 - Financial Crises

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