Information Efficiency in Small and Underdeveloped Financial Market

Abstract

Testing the efficient market hypothesis can always bring interest­ing points regarding the functions of the financial markets. 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 its forms come into question. Until to­day one can find research on 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 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 analyzing daily price differences.