Quinton Morris, Masters and Paul Styger, Ph.D. Economics, North-West University, Hoffman Street, Potchefstroom, 2521, South Africa
The weak-form of the efficient market hypothesis (EMH) asserts that share prices reflect all information obtained from past trading. This study investigates the weak-form efficiency for the South African stock market (JSE) by means of Wavelet and Markov Switching Regime Analyses. This study was done on selected shares and indices of the JSE. The results showed that the Wavelet Analysis indicated that most prices’ time series are mean reverting over the long run and follow a long memory process, offering evidence against the weak-form EMH. The Markov Switching Regime Model modelled the price behaviour accurately, because the financial and economic conditions that existed over the period of observation supported the findings of the Markov Switching Regime Model. Additionally, the Markov Switching Regime Model indicated that there are patterns in the historical share prices’ time series, and according to the technical trading theories, these historical patterns can be used to predict future share prices. Thus, the weak-form EMH does not hold.