A New Variance Ratio Test of Random Walk in Emerging Markets : A Revisit

Using Wright's (2000) new non-parametric variance-ratio (VR) test, we revisit the empirical validity of the random walk hypothesis in eight emerging markets in the Middle East and North Africa (MENA): Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Saudi Arabia, and Tunisia. We show that: (i) while returns from raw data do not follow a random walk, one cannot reject the random walk hypothesis, particularly when the data have not been corrected to remove any measurement bias arising from thin and infrequent trading prevalent in nascent and small stock markets; (ii) Wright's non-parametric VR is more appropriate for emerging stock markets; and (iii) our findings can explain the contradictory results in the literature regarding the relative efficiency of emerging markets in MENA