Random Walk of Security Prices: Empirical Evidence from KSE, LSE, and ISE

Abstract

Previously security market research had been focused mainly on developed economies with no attention paid to the security markets of developing countries of South East Asia. In an attempt to fill this gap in the literature, this paper conducts an empirical investigation of the random walk of security prices in Pakistani stock markets. The Augmented Dickey fuller test, Ljung Box Q test, Variance ratio test and a non parametric Run test has been used for analysis of Random walk of security prices. Results indicate the presence of some predictable elements, which contradict with previous studies on Karachi stock market. This is because of the difference in number of observation used in previous studies and this particular study. To conclude, the Karachi stock exchange and Islamabad stock exchange does show a weak random walk of security prices, while Lahore stock exchange show strong random walk of security prices.