Empirical test of the strong form efficiency of the Warsaw stock exchange : the analysis of WIG 20 index shares.
Authors
Tomasz Potocki
Tomasz Swist
Keywords:
Capital market, Strong form informational efficiency, Abnormal rate of return, WIG 20 index, C1, G1, G14, G23
Abstract
There are three forms of information efficiency of a market that may be verified.
Testing weak form efficiency provides information on reflection of the historical
values of share prices. Most research on the subject proves the validity of the
hypothesis
that the technical analysis does not allow the achievement of abnormal
rates of return. In the case of the semi-strong form the empirical research does
not provide explicit answers; however, most research weighs in favour of the
hypothesis
of the semi-strong form of market informational efficiency. According
to the hypothesis, it is impossible to achieve above-average profits in the long run,
based on technical and fundamental analysis. The strong form efficiency represents
another type of market informational efficiency, which is most difficult to verify,
as it requires the use of non-public information. The purpose of the following
article
is to verify the strong form of market informational efficiency, based on
the assumption that the institutions issuing recommendations have access to
information
inaccessible to the community of investors. The research sample
consists of 3,270 recommendations produced between 1 January 2005 and 31 March
2010 by 63 financial entities with reference to companies making up the WIG 20
index. In most cases the obtained results provide evidence for the hypothesis that
the strong form efficiency is characteristic of the WIG 20 index shares listed on
the Warsaw Stock Exchange.