earticle

영어

Weak form efficiency is implemented empirically by assuming that returns are serially uncorrelated. If the prices are really random and bear little relation to fundamentals, the serial correlation of prices over time could be zero. Therefore, in an efficient market, there should not be much predictability in returns.The aim of this paper is to derive theoretically a explanatory power within tolerable bounds for efficient market theory suggested by Ross(2003). In addition, by applying Ross's test theory, we find the tolerable bounds for efficient market in Korean stock market.We tested efficient markets using daily KOSPI data to the sample size of 1725 in the period 1999－2005. The test shows that any serial correlation will be rejected for the efficient market hypothesis if it is expected to do better than 0.1259% in its R2. In the first method for Ross's variance ratio test, a maximum serial correlation should be less than －0.03548 for the assumed sample size, T＝100. Given －0.03548, the variance ratio should be as high as 93.2 to hold weak form efficiency. Using the second method, a maximum serial correlation should be less than the order of －0.002980, thus, the variance ratio can be as high as 70.5 to hold weak form efficiency.