Testing for efficiency in the Saudi stock market: does corporate governance change matter?

Abstract

We study the informational efficiency of the Saudi stock market (SSM), while accounting for corporate governance change, based on single, multiple, and variance ratio-based WALD tests and runs test. The main findings indicate that when the whole period is considered, the random walk hypothesis is rejected, but when divided into two sub-periods separated by the pre-corporate governance and the period marked by corporate governance change, the analysis demonstrates sub-period improvement in weak-form efficiency for the examined series. Robustness of results is verified by analysis using sector indices, which point to market efficiency. Interestingly, Hurst Exponent estimates evidence long-range dependence which suggests the predictability of stock prices and the prospect of speculative opportunities.