Efficient market theory and testing the weak-form efficency of the İstanbul Stock Market (ISM)

Efficient markets theory is based on the hypothesis that; information which reaches the market randomly is randomly reflected wholly and instantly on the security prices as well. According to the efficient markets theory, it will not be possible to obtain a abnormal income using any information in an efficient market. Efficient markets theory is classified in three groups according to the information likely to affect market prices. First of these efficiencies is formed as the ?weak form efficient? in which market prices reflect the previous price information; the second as ?semi-strong form efficient? in which all public information are reflected and the third as ?strong form efficient? in which all information, including inter-company confidential information, are reflected.The objective of this survey is to investigate whether the weak form of Istanbul Stock Exchange (ISE) Efficient Markets Theory (EPK) is efficient or not. 38 firms were selected among ISE-50 Index and the dates 01.01.2001-31.12.2006 belonging to 6 indices were included in the scope in order to test the weak form efficient of ISE.In our research; correlation test, regression analysis, run test and filter test were applied in order to test the weak form of efficiency of ISE. Significant correlation coefficients are seen between consecutive yields within empiric findings of the survey?s correlation test. Again according to the regression analysis results, significant ? coefficients are seen in the regression equation. This situation gives information about current or future price estimates using the previous price information of ISE. This result puts forth the consequence that the weak form of efficient markets theory is not valid at ISE. The run test used in the survey exhibited results which support correlation and regression analysis as well. Upon examination of the consecutive yields? direction, it was found out that there was a trend relation according to the run test. If these trends related to daily yields are determined, abnormal yield can be earned by applying technical analysis method. According to filter test findings, the filter efficiencies of some securities have provided better efficiency compared to ?buy and hold? policy.Consequently, it was found out that the efficient markets theory of Istanbul Stock Exchange (ISE) is not efficient.