An Empirical Analysis of a Stock Market Index of a Developing Country: Case of the Main Index of the Casablanca Stock Exchange MASI

Abstract

Purpose: Managing stock market risk and making an optimal investment decision in a stock market requires study- ing the dynamics of this market and analyzing the fluctuations of its benchmark index in order to avoid heavy damage in the event of crises. This paper aims to study and analyze the fluctuations of the main index of the Casablanca Stock Exchange "MASI" to explore its efficiency and stability in the normal financial context (especially before the recent pandemic crisis). Design/methodology/approach: To carry out this study, two methods are proposed, the first one, how evolves this index over time depending on some random data generation processes widely used for stock prices: A Random Walk with a drift RW(α) and an autoregressive process of order 1 AR(1). Based on the actual MASI returns series used (2007-2018), we estimate each equation parameter according to the process chosen to generate the artificial MASI returns series to know the most relevant data generation process in the case of The Moroccan financial market. The second method focuses on the technique of "simple moving average" as a method of stock prices fluctuation analysis to make its investment decision, choosing the proper order on the same series. Findings: The results and findings of our econometric study show, in the first method, that either the RW(α) or the AR(1) process cannot adequately model MASI fluctuation. However, the results of the second method affirm the utility of the simple moving average to identify trends, their strength and buy / sell signals, using some techniques known in this field, in order to make decisions and draw interpretations in investment terms and risk management, which can prove that the market is less efficient and stable. Research limitations/implications: An important implication of this study is the need to explore the efficient models to describe the MASI return series. Originality/value: This study offers empirical evidence in relation to the estimation of the econometric model to describe MASI and how to make adequate investment decisions in the Moroccan stock market. Moreover, contributes to future research to find other more appropriate models.