This document is a research proposal that aims to investigate the efficiency of the Ghana Stock Exchange through various statistical tests and analyses of time series properties. Specifically, it will examine forms of efficiency, factors associated with efficiency, how efficiency evolves over time, and stochastic properties. The study is justified because understanding an emerging market's efficiency is important for attracting investment and facilitating economic growth. The proposal provides background on definitions of market efficiency and cites several references to situate the research in the relevant literature.

1. FINANCIAL MARKET EFFICIENCY: A STUDY OF THE TIME SERIES PROPERTIES
OF THE GHANAIAN STOCK MARKET
BY
EMMANUEL NUMAPAU GYAMFI (MSc)
PHD RESEARCH PROPOSAL
THE AIT BUSINESS SCHOOL
“In partial fulfilment of the requirements for the degree of the Doctor of
Philosophy (PhD) in Business Administration
10th January, 2013.
ABSTRACT
The main role of a stock market is the provision of an efficient market for stocks and shares.

2. There is a need for market efficiency to be investigated since investors both international and
local assess these factors before committing funds to a particular market. In addition, the
relative efficiency of a stock market will indicate whether new regulation should be
considered and if some government intervention is necessary.
Hussain (1996) stated that "A realization of inefficiencies inherent in command and control
policies and the tighter lending policies of international creditors have led the developing
countries to re-define the role of domestic equity markets in their economies. This study aims
at investigating the issue of efficiency in the Ghana Stock Exchange (GSE) by the use
ofConventional tests beside recent econometric techniques using returns of specific shares
listed on the GSE. In addition, the work explores the impact of several factors on market
efficiency.
RESEARCH FIELD AND SUBJECT
The field of study is finance and the subject is financial markets.
GENERAL OBJECTIVES
The general objective is to contribute to the general body of knowledge and the area of
efficiency in financial markets specifically stock markets.
SPECIFIC OBJECTIVES
The specific objectives of this study are:
To investigate various form of efficiency of GSE
To examine the factors are associated with a higher degree of market efficiency
To determine if market efficiency evolve over time
To study the stochastic properties of the GSE
PROBLEM STATEMENT
There has been many works done on the GSE but those examined has not looked at its
efficiency for investment and policy analysis. Therefore, this study seeks to examine the
efficiency and time series properties of the GSE.

3. BACKGROUND
The determination of stock prices is extremely important to investors. The term ‘’market
efficiency’’, has been defined in the simplest way in the seminal review of Fama (1970), as a
market which requires that in setting the prices of securities at any time t, it correctly uses all
available information. More specifically, the efficient markets hypothesis (EMH) defines an
efficient market as one in which new information is quickly and correctly reflected in its
current security price. There has been other definitions proposed by Rubinstein (1975, 2001),
Jensen (1978), Beaver (1981), Black (1986), Dacorognaet al. (2001), Malkiel (2003),
Timmermann and Granger (2004) and Milionis (2007).
This shows that the literature has not agreed on a standard definition for market efficiency
and thus not surprising to learn that the efficiency of financial markets has been examined
empirically in many different ways. In terms of empirical findings, Lo (2008) notes that even
after thousands of published articles spanning over several decades, there is still no consensus
among economists on whether financial markets are efficient.
In his first review paper, Fama (1970) outlines the taxonomy of information sets available to
market participants and further classifies the EMH into the weak-form, semi-strong-form and
strong-form. This thesis will focus on the weak-form version, which states that security prices
fully reflect all information contained in the past price history of the market.
The weak-form category can be subdivided into at least two major groups according to Fama
(1991).The first group of studies tests the predictability of security returns on the basis of past
price changes. More specifically, previous studies in this sub-category employ a wide array
of statistical tests to detect different types of deviations from a random walk in financial time
series, such as linear serial correlations, unit root, low-dimensional chaos; nonlinear serial
dependence and long memory (see the literature review in Section 2.2 of this thesis). The
second group of studies examines the profitability of trading strategies based on past returns;
such as technical trading rules (see the survey paper by Park and Irwin, 2007), momentum
and contrarian strategies (see references cited in Chou et al., 2007).
JUSTIFICATION
A stock market that is functioning is an important component in a competitive economy
because it helps in allocating the economy's capital stock. The growing trading volumes in
stock markets globally imply that the importance of stock markets is increasingly
pronounced. Financial markets, or exchanges, play a crucial role in facilitating the
intermediation between savers and investors, thereby helping translate savings into
investments. The more efficient this process is, the less the cost of investing, and
subsequently, the higher the rate of investment/saving. This, in turn, usually leads to higher
rates of economic growth for any given country.
Moreover, financial markets contribute to economic development by attracting foreign
portfolio capital and foreign direct investment. Currently, the increasing globalisation of

4. financial markets has heightened interest in emerging markets. However, much of the
research in finance has focused on developed markets which are most likely to be consistent
with the assumptions of theoretical models, a feature which might not exist in emerging
markets.
Therefore, emerging equity markets provide a challenge to existing models. The interest in
emerging markets has provided impetus for both the adaptation of current models to new
circumstances in these markets, and the development of new models (Bekaert and Harvey,
2002).
Ghana Stock Exchange (GSE), as an emerging market, is expected to play an increasingly
important role in helping the country compete for domestic, regional and international capital
needed for economic development and growth. To achieve this, significant studies need to be
conducted to investigate the properties and functioning of such a market. Studies on GSE, as
is the case in most emerging markets is very few and thus the need to carry out this study on
its efficiency.
BIBLIOGRAPHY
1. Bekaert, G., and C. Harvey, (1997) Emerging Equity Market Volatility.
Journal ofFinancial Economics, 43: 29-77.
2. Black, F. (1986). Noise. Journal of Finance, 41(3), 529-543.
3. Chou, P.H., Wei, K.C.J., & Chung, H. (2007). Sources of contrarian profits in the
Japanese stock market. Journal of Empirical Finance, 14(3), 261-286.
4. Dacorogna, M., Müller, U., Olsen, R., &Pictet, O. (2001). Defining efficiency in
heterogeneous markets. Quantitative Finance, 1(2), 198-201.

5. 5. Fama, E.F. (1970). Efficient capital markets: a review of theory and empirical work.
Journal of Finance, 25(2), 383-417
6. Fama, E.F. (1991). Efficient capital markets: II. Journal of Finance, 46(5), 1575-
1617.
7. Hussain, F., (1996) Stock price Behaviour in an Emerging Market: A case Study of
Pakistan. PhD thesis. The Catholic University of America.
8. Jefferis, K., & Smith, G. (2004). Capitalisation and weak-form efficiency in the JSE
Securities Exchange. South African Journal of Economics, 72(4), 684-707.
9. Jensen, M.C. (1978). Some anomalous evidence regarding market efficiency. Journal
of Financial Economics, 6(2-3), 95-101.
10. Lo, A.W. (2008). Efficient markets hypothesis. In S.N. Durlauf& L.E. Blume (Eds.),
The New Palgrave Dictionary of Economics Online (2nd edition,
doi:10.1057/9780230226203.9780230220454). New York: Palgrave Macmillan.
11. Malkiel, B.G. (2003). The efficient market hypothesis and its critics. Journal of
Economic Perspectives, 17(1), 59-82.
12. Milionis, A.E. (2007). Efficient capital markets: a statistical definition and comments.
Statistics & Probability Letters, 77(6), 607-613.
13. Ntim, C.G., Opong, K.K., &Danbolt, J. (2007). An empirical re-examination of the
weak form efficient markets hypothesis of the Ghana stock market using variance-
ratios tests. African Finance Journal, 9(2), 1-25.
14. Park, C.H., & Irwin, S.H. (2007). What do we know about the profitability of
technical analysis? Journal of Economic Surveys, 21(4), 786-826.