Information efficiency in small and underdeveloped financial market

Abstract

Abstract: Testing the Efficient Market Hypothesis can always bring interesting points regarding the financial markets’ functions. Every investor wants to beat the market, and therefore he is trying to find information that will gain him some privileges. On the other side, the stock exchanges and regulatory agencies are striving to eliminate those information privileges. This is where market efficiency, its theory, and forms come into question. Until today one can find research conducted testing the efficiency of different developed markets. However, there are still a lot of gaps in research involving small and underdeveloped markets. This research may put the developing markets on the investment opportunities map of the international investors. The purpose of this paper is to show how information efficiency relates to the Macedonian stock market by testing the weak form efficiency, using the augmented Dickey-Fuller (ADF) test to observe whether they contain a unit root or not. The results will be used to show the opportunities for adopting a profitable investment strategy using the technical analysis of the Macedonian stock exchange. Additionally, the results show that by using the mouthy price differences one cannot beat the market as the prices are moving with a random walk, which is not the case if investors are analysing daily price differences.