Testing the Weak-Form Efficiency of Agriculture’s Capital Markets

Ghimire, Binam, Annussek, Kolja, Harvey, Jackie and Sharma, Satish (2016) Testing the Weak-Form Efficiency of Agriculture’s Capital Markets. Economics and Business Review, 2 (16) (2). pp. 3-17. ISSN 2392-1641

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Abstract

This paper investigates the empirical validity of the weak-form Efficient Market Hypothesis (EMH) in the global equity markets for agriculture. We also examine whether developed agriculture markets are more efficient than emerging agriculture markets. We test six agriculture and food chain indices over the period of time between 2010 and 2013. We applied a cross-sectional as well as longitudinal study approach. The weak EMH was tested using the parametric Augmented Dickey-Fuller test as well as the non-parametric Runs test and Autocorrelation function test. The parametric test suggested some evidence for the existence of the weak-form EMH for all six indices in at least some of the five tested periods. However, the non-parametric tests clearly proved the inefficiency of all indices during all periods. Thus, we rejected the null hypothesis for all indices in all periods eventually. Accordingly, agriculture’s developed markets are equally inefficient and predictable as its emerging markets. The results of this work suggest that investors can achieve superior returns by investing in agriculture’s equity markets following a technical analysis and active portfolio approach. Thus, this work is in great interest for investors and portfolio managers following an agriculture strategy. The study adds value to current research into market efficiency in developed as well as emerging markets.

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