Testing of the weak form market efficiency on Borsa Istanbul: An analysis in the sectoral framework

The way to exceed the average profit with investments in different markets is to take advantage of any abnormalities that occur. However, investors will not be able to earn above average profit while the market is operating effectively. The efficient operation of the market will be possible by the immediate reflection of the new information to the prices. Therefore, the fact of information is an important criterion in determining the level of efficiency of financial markets. In information-based markets, the level of effectiveness is examined in three ways: weak form, semi-strong form and strong form according to the type of information that occurs and the degree of reflection on prices. With this study, it is aimed to examine whether Borsa Istanbul is efficient in weak form by using monthly closing data of selected indices in Borsa Istanbul. For this purpose, Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) which are traditional unit root tests and Lee-Strazicich (LS) unit root test with structural breaks were used. Traditional unit root tests can give incorrect results about the presence of unit root in case of structural breaks in series. Therefore, the LS unit root test, which permits two structural breaks, was used to eliminate such errors. From the findings of the structural break unit root test, it is understood that the XFINK index does not contain unit root at all significance levels, and the XILTM index does not contain unit root at only 10% significance level. The remaining indices were found to have unit roots at all levels of significance. As a result of the findings, test results show that Borsa Istanbul is efficient market in weak form during the period examined. In other words, stock prices in the market include all past price information, and no investor will be able to make much profit using this information. Keywords: Borsa İstanbul, Efficient Market Hypothesis, Weak Form Market Efficiency, Unit Root Test