Testing the Random Walk Model on the EMAS Islamic Index of the Malaysian Stock Exchange: An Applied Study on the EMAS Islamic Index from 2007 to 2018
Keywords:
Weak-form market efficiency, EMAS Islamic Index, Random Walk ModelAbstract
Objectives: This study aims to test the efficiency of the Islamic stock market in the Malaysian Stock Exchange at the weak form level, using the Random Walk Model.
Methodology: The study followed statistical and econometric methods, including tests such as the normality test, serial correlation test, runs test, unit root test (stationarity), and variance ratio test, to evaluate the primary and secondary hypotheses. The study sample consisted of daily and weekly return series of the EMAS Islamic Index, which represents the Islamic capital market in Malaysia, during the period from 2007 to 2018, with a total of 2,804 daily return observations and 573 weekly return observations.
Results: The results of the normality test showed that the daily and weekly return series of the EMAS index do not follow a normal distribution. There is potential to use directional movements of returns in Malaysia's Islamic stock market, on both a daily and weekly basis, to predict future movements and prices. The serial correlation and runs tests captured the randomness of the weekly return time series of the index, indicating that the weekly return series are independent and non-reliant, thus following the Random Walk Model. However, the results of the stationarity and variance ratio tests did not support market efficiency, indicating that the daily and weekly return time series of the index are not random and do not follow the Random Walk Model, suggesting that the Islamic stock market in the Malaysian Stock Exchange is not efficient at the weak form level.
Conclusion: There is a need to improve the Shariah-compliance efficiency of the Islamic stock market in the Malaysian Stock Exchange, with a focus on correcting pricing imbalances and reducing Shariah-related risks, as these factors play a significant role in attracting investors and enhancing operational efficiency, ultimately improving market efficiency.
Keywords: Weak-form market efficiency, EMAS Islamic Index,Random Walk Model
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Copyright (c) 2025 Journal of Economics and Political Sciences
This work is licensed under a Creative Commons Attribution 4.0 International License.
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Accepted 2025-05-11
Published 2025-05-27
