Testing The Random Walk (Rw) Behaviour of Botswana’s Equity Returns
Authors: Radikoko Ishmael 
Published: November 2016

<!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:AllowPNG /> </o:OfficeDocumentSettings> </xml><![endif]--> <p><em>This paper examines the efficiency of Botswana’s capital market </em><em>by testing the presence of random walk (RW) behavior in the Domestic Companies Index covering a period of 1989-2013 and Foreign Companies Index covering a period of 2005-2013. These return series represent Botswana’s equity market. Linear tests (i.e. Autocorrelations and ADF test) and nonlinear dynamics tests (i.e.Runs and R/S test) are applied to test the randomness of these return series. Results of the parametric autocorrelations test and the nonparametric runs test suggest that returns are serially correlated. Univariate unit root test (i.e. ADF) rejects the RW behavior of returns suggesting that the data is stationary. These results are further supported by those of the R/S test which indicates that all BSE index returns series possess strong persistent behavior which supports momentum investing. Generally, the results reject the Random walk behavior governing Botswana’s Equity market, implying that the market is weak-form inefficient. Overall, these results suggest that it is possible for investors to use historical stock market information to predict future stock prices employing some investments strategies to earn abnormal returns which nullifies the notion of market efficiency. Therefore in Botswana the efforts of technical and fundamental stock analysts are not futile</em>.</p> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves /> <w:TrackFormatting /> <w:PunctuationKerning /> <w:ValidateAgainstSchemas /> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:DoNotPromoteQF /> <w:LidThemeOther>EN-ZA</w:LidThemeOther> <w:LidThemeAsian>X-NONE</w:LidThemeAsian> <w:LidThemeComplexScript>X-NONE</w:LidThemeComplexScript> <w:Compatibility> <w:BreakWrappedTables /> <w:SnapToGridInCell /> <w:WrapTextWithPunct /> <w:UseAsianBreakRules /> <w:DontGrowAutofit /> <w:SplitPgBreakAndParaMark /> <w:EnableOpenTypeKerning /> <w:DontFlipMirrorIndents /> <w:OverrideTableStyleHps /> </w:Compatibility> <m:mathPr> <m:mathFont m:val="Cambria Math" /> <m:brkBin m:val="before" /> <m:brkBinSub m:val="&#45;-" /> <m:smallFrac 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