Testing of random walk hypothesis of Rwanda stock market returns

ABSTRACT

The behavior of stock market returns is a central issue to the theory and practice of asset pricing, asset allocation, and risk management. The supporters of the Efficient Market Hypothesis claim that stock price indices are basically random and as such any speculation based on past information is fruitless. These papers investigate the Random Walk (RW) behavior of stock market return of Rwanda. The naïve random walk model was estimated using Ordinary Least Squares (OLS) method over the period 1st January, 2015 to 31st December, 2015. The daily data are obtained from the Bank of National Rwanda the study result reveals that the return series is insignificantly different from zero, which is consistent with the random walk hypothesis. The present study, therefore, suggests that the Rwanda stock market is found to be efficient and supports the random walk behavior.

Keywords: Rwanda Stock Exchange, Random Walk Hypothesis, and OLS