Efficiency in financial markets and testing weak form of efficiency

m ABSTRACT In this study the term of efficiency has been studied from financial and economic point of view. Particularly importance of information efficiency has been emphasized for financial markets to greatly accomplish their functions. The reasons, which cause inefficiencies in these markets, have been studied. Among these reasons are asymmetric information, moral hazard, adverse selection, volatility, uncertainty, price bubbles,noise traders, tecnology, social dynamics,and regulation of government authorities. In the study, portfolio theory, capital asset pricing model, arbitrage pricing model and efficient market hypotesis have also been studied. The form, which states market efficiency of efficient market hypotesis in a weak form efficiency has been applied on 5 indices at Istanbul Stock Exchange. These indexes are ISE 100, ISE Industry, ISE Finance, ISE Services and ISE All Sectors. In the result of application model, it has been decided that Istanbul Stock Exchange Market should not be efficient in a weak form efficiency. In the result of cointegration test applied, it has been understood that there is no cointegrated relationship between indexes in the long term and in the application model with nonlinear estimation, applied technique for the indexe of ISE 100, it has been decided that overreaction hypotesis for ISE 100 be valid.