A Test of the Weak Form Efficiency of the Zimbabwe Stock Exchange After Currency Reform
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Date
2013-06
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Abstract
The Zimbabwean dollar lost its value and purpose as a medium of exchange as a result of the hyper inflation which had its
greatest impact on the Zimbabwean economy between 2007 and 2008. The introduction of the multi-currency system, which
entails the use of various foreign currencies to transact, resulted in the Zimbabwe Stock Exchange (ZSE) adopting the United
States dollar (USD) as its main currency. The researchers investigated the weak form efficiency of the ZSE after introduction of
the multi-currency system by testing if it is possible to create an excess return by the use of technical trading rules. According to
the efficient market hypothesis (EMH) and the random walk theory, in an efficient market it is not possible to predict the future
stock prices by analysing historical stock prices. The profitability of technical analysis and technical trading rules has been
researched and debated extensively, but researchers are yet to reach a consensus. This article focuses exclusively on the ZSE.
The purpose of this article is to test whether the ZSE exhibits weak form market efficiency. The data used to carry out the
empirical study was obtained from the ZSE for the period 19 February 2009 to 28 June 2012. The efficiency of the ZSE is tested
using the daily closing prices and indices over the aforementioned period. The data was then subjected to a number of tests
namely auto-correlation, the runs test and the Q-statistic test. The results of the study provide evidence that the ZSE is not weak
form efficient. This article adds to the existing body of knowledge and offers for the first time an investigation of the weak form
efficiency on the ZSE following currency reform.
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Keywords
Zimbabwe stock exchange, Efficiency, Multi-currency
Citation
Mazviona, B. W. Nyangara, D. 2013. A Test of the Weak Form Efficiency of the Zimbabwe Stock Exchange After Currency Reform. International Journal of Business, Economics and Law, Vol. 2, Issue 2