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The Efficient Market Hypothesis Testing on the Prague Stock Exchange

By Miloslav Vošvrda, Jan Filáček and Marek Kaplička

Abstract

We have shown that in the period of 1995-1997 the weak form Efficient Market Hypothesis does not apply to the Prague Stock Exchange. This conclusion is supported especially by the magnitude of autocorrelation between subsequent returns. Due to this result, the confirmation and analysis of heteroskedasticity can be considered as the most important contribution of this article. We used GARCH (1,1) model to eliminate heteroskedasticity. Normalized residuals obtained from this estimate are indeed homoskedastic, but the hypothesis of normality was rejected.

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