It has been suggested that stock exchanges may be tested for market efficiency by using tests for assessing random number generators. This paper uses such a test to assess the efficiency of small, mid and large cap indices on the Johannesburg Stock Exchange, while making adjustments for thin trading which occurs during the sample period. The efficiency of these indices is examined using individual share level data as well as index level data over a stable period and a period containing the 2008 financial crisis. This study finds evidence suggesting that small cap stocks exhibit a high degree of non-randomness in price movements. Some inefficiencies also appear to be present in mid and large cap stocks, however to a much lesser extent, with large cap stocks exhibiting higher levels of efficiency. Many of the stocks investigated appear to exhibit lower levels of efficiency during the crisis period. This may be a result of increased irrationality during periods of uncertainty.
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See Roux and Gilbertson (1978) for more.
The total number of shares analysed by Kruger et al. (2012) was 109. We analysed 111 shares in this paper. It is not apparently obvious if the set of shares studied by Kruger, Toerien and MacDonald is a proper subset of the set of shares studied in this paper.
The number of shares removed from the sample are as follows: 32 Small, 17 Mid, and 6 Large Cap shares.
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Noakes, M.A., Rajaratnam, K. Testing market efficiency on the Johannesburg Stock Exchange using the overlapping serial test. Ann Oper Res 243, 273–300 (2016). https://doi.org/10.1007/s10479-014-1751-y