Impact of Futures Contracts on Weak Form of Market Efficiency in Pakistan

The paper analyses the impact of futures contracts on weak form of Efficient Market Hypothesis on the Pakistan Stock Exchange (PSX). The current study uses ten years data of 18 companies, which offer futures contact, and 58 firms which do not offer futures contracts over the period from January 2006 to December 2015. This study applies Variance Ratio Test (VRT), Auto Correlation Function Test (ACF), Unit Root Test and Run Test (RT) to measure weak form of market efficiency. The results find that returns for both samples do not follow random walk and document a particular trend in the form of significant correlation with previous returns. This study shows that futures contracts have insignificant impact on market efficiency on the PSX. One implication of the research is that investors may earn abnormal returns looking at the pattern of past share prices of the firms issuing future contracts. In addition, the results confirm that Pakistani market is not different from other markets (especially emerging) regarding efficiency