Emergent markets and random walk hypothesis – evidence from Pakistan

This is the study to test the random walk hypothesis in Karachi stock market, with the objective of finding possibilities of abnormal returns for investors. Random walk hypothesis is consistent with the efficient market hypothesis that's why efficiency of Karachi stock exchange is measured using variables i-e share price (of the companies which are integral part of KSE 100 index) and KSE 100 index. Event study approach was used and correlation between these two variables was measured before and after the event i-e financial reports of selected companies. Four years data, starting from 2011, was selected in the short run of five days i-e day before presentation of financial reports, presentation day and the next three days. Positive reports were selected only because this study is in perspective of investor who is seeking opportunities for abnormal return. It is a kind of quantitative study and different statistical tests like Jarque-Bera test, correlation and paired sample t-test were used to find out meaningful information from the data. It was concluded, on the basis of results that Karachi stock exchange is not efficient and random walk hypothesis does not exist. So Karachi stock exchange is a good place to invest for the investors who are interested in abnormal returns.