Testing the weak form efficiency of Karachi Stock Exchange

In an efficient market, share prices reflect all available information. The study of efficient market hypothesis helps to take right decisions related to investments. In this research, weak form efficiency has been tested of Karachi Stock Exchange-KSE covering the period of 2nd November 1991 to 2nd November 2011. Descriptive statistics indicated the absence of weak form efficiency while results of non-parametric tests, showed consistency as well. We employed non-parametric tests were KS Goodness-of-Fit test, run test and autocorrelation test to find out serial independency of the data. Results prove that KSE is not weak-form-efficient. This happens because KSE is an emerging market and there, it has been observed that information take time to be processed. Thus it can be said that technical analysis may be applied to gain abnormal returns.