Testing of the efficient market hypothesis with A-FIGARCH model in ISE: An application on sector indexes

Total Number of Pages:74The efficient market hypothesis suggest that prices of securities that are traded in the financial market are not affected by own past values. In this context, investors cannot gain excessive return by using past values of prices of securities in an efficient market. In an inefficient market, because information acquisition about securities causes cost differences in terms of level of information and the importance of information for investors, market efficiency has become desirable. Market efficiency can be provided when all investors in the securities market can reach all the information about the prices of securities and the prices of securities can reflect the information at the same time.In this study, the efficient market hypothesis in the ISE is analyzed in sector specific by using A-FIGARCH model. A-FIGARCH model provides efficient estimators when there are structural break and long memory in the volatility of returns series and in this context, this is the first study to examine the efficient market hypothesis in the ISE by using A-FIGARCH model. We calculate returns series by means of daily closing prices and the presence of structural breaks in the variance of returns series is examined structural break test proposed by Sanso et al. (2004). As a result, sector indices for ISE 30, banking, food, basic metal, insurance, tourism and transportation are considered in the context of this study and it is determined the presence of long memory in the volatility of these sectors. These findings suggest that the ISE is not weak form efficient market.