Empirical Testing of the Informational Efficiency in Palestine Securities Exchange (PSE)

Abstract

This study aimed at empirically testing the efficiency of the Palestine

Securities Exchange (PSE) in terms of the Composite Index (Al-Quds) for

the period 8 July 1997 – 30 December 2007, i.e. (196s Observations). The

random walk test is performed to ascertain whether the (PSE) is Weak Form

Efficient. Three widely accepted statistical tests have been used, namely:

Auto-Correlation Function (ACF), Variance Ratio (VR) based on (Lo and

McKinley’s 1988) Parametric tests, and Run tests as nonparametric tests.

Results showed that the PSE was inefficient for all and partial period

samples, even after modification of date and analysis for the true underlying

index using (Miller. Muthuswamy and Whaley 1994) approach. However,

these results are consistent with evidence provided in {(Shaheen, 2006),

(AbuZarrour, 2005), (Al-Fayoumi, 2003)}.

Thus, on the repatriation of capital, which may have deterred foreign

participation, and contributed to illiquidity and low volume of trading, are

due to the weakness confidence and perceived risks of the market. Therefore,

the study presented a number of recommendations that may be helpful

in improving the efficiency of the PSE, which in turn increases its role in

the Palestinian economy as whole.