Predictability of Stock Returns: A Weak Form Efficiency Test of the Dhaka Stock Exchange

Predictability of Stock Returns

Abstract

This study investigates the weak-form market efficiency of the Dhaka Stock Exchange (DSE). The study uncovered valuable insights that drive informed investment decisions by leveraging daily closing price data from the DSEX, DSE30, and DSES indices from 2015 to 2023. The findings revealed significant deviations from weak-form efficiency, with evidence of autocorrelation, non-stationarity in returns, and predictable price patterns. These inefficiencies are attributed to structural factors such as low liquidity, limited regulatory frameworks, and behavioral biases prevalent in emerging markets. The results suggested that past price information can predict future stock movements, offering opportunities for investors to achieve abnormal returns but posing challenges for market stability. The study underscored the need for regulatory reforms, improved market transparency, and enhanced investor education to foster market efficiency. These findings provided critical insights for policymakers, investors, and researchers, highlighting the complex dynamics of market behavior in emerging economies like Bangladesh.