Testing the Weak-Form Efficiency of the Stock Market: Pakistan as an Emerging Economy

In this study weak-form market efficiency hypothesis is tested on an emerging stock market Karachi stock exchange Pakistan. Secondary data has been taken for twelve years from January 1999 to December 2010 of KSE 100 Index. This time period is divided into four groups including three years each. Weak-form efficiency tests such as Augmented Dickey-fuller test, Auto-correlation function test, Phillip Perron test and Runs test are applied to analyze the data. All these tests rejected efficient market hypothesis(EMH) in its weak-form except Runs test , which suggested weak-form market efficiency for two groups of years 1999-2001 and 2005-2007.Overall KSE of Pakistan is weak-form inefficient and investors are compensated for taking augmented risk.