The Random Walk Hypothesis of Stock Exchange of Mauritius
The efficient market hypothesis (EMH) has been a subject of considerable debate and the purpose of this paper is
to assess the presence of the momentum effect on the Stock Exchange of Mauritius (SEM) and its implications for investors
and aims at revisiting and divulging the existing empirical evidence regarding the informational efficiency and random walk
in stock markets of developed and emergent markets. Most of the empirical literature on the topic after the seminal work of
Fama (1965a) is based on the developed markets. However, emergent markets received greater attention of the researchers
after the huge inflow of capital in these markets after financial liberalization. The key question investigates for this paper is
whether successive stock price returns on the SEM, independent random variables so that price return cannot be predicted
from historical data. Previous studies by eminent scholars have been inconclusive and produced varying findings. Some accept
that the stock prices are governed by the random walk hypothesis while others reject that hypothesis. Four stock market
returns indicators are assessed over the period August 2006 to May 2014. The SEMDEX is found to be stationary while the
SEMTRI, DEMEX and DEMTRI series are non-stationary.
Keywords- Efficient market hypothesis (EMH); literature review; efficient markets; random walk; emergent markets.