TESTING THE WEAK FORM OF EFFICIENT MARKET HYPOTHESIS IN DEVELOPING COUNTRIES (LDCS) STOCK MARKETS: LIMITS AND SUGGESTIONS

Abstract

This paper highlights some limits of weak form of efficiency tests on stock markets in developing countries. These tests, by neglecting important questions such as joined tests and the “bad model problem”, don't integrate all the empirical implications of the informational efficiency theory. By using a framework inspiring from Fama (1970) sub-martingale model and the Harrison-Kreps (1981) paradigm, we show the relevance of joined tests using as underlying model an equilibrium model as DCAPM (downside-Capital Asset Pricing Model) compatible with asymmetry and non-normality of the distribution of returns indeveloping countries.