Further Evidence on Efficiency of Bahrain Bourse: A High Challenge for Other Industries

The purpose of the present study is to provide further evidence of the weak form efficiency of the Bahrain Bourse. The research methodology is based on daily closing index values of the Bahrain Bourse from 2011 to 2015 in order to test the efficiency of the stock market while runs test, Autocorrelation Function, and advance tools such as ARCH and GARCH models and Hurst Index to provide further evidence of the weak form efficiency of the Bahrain stock market. For instance, a volatile and inefficient stock market has a negative impact on the textile and apparel industry in the Kingdom of Bahrain, which is one of the most prosperous and attractive industries in the country. The empirical results revealed that Bahrain stock market does not follow a normal distribution and the successive price changes are not independent. Further, ARCH effect is significant and indicative of a time-varying conditional volatility. There is an arbitrage opportunity and extreme mispricing in the Bahrain stock market as indicated by the GARCH (1,1) model. The results of the Hurst exponent also confirm the inefficiency of the market. The results of these tests are consistently indicating that the Bahrain stock market is inefficient.