H0: Between individual companies and GCC countries, there is no significant differences between efficient
markets.
H1: Between individual companies and GCC countries, there is significant differences between efficient
markets.
Table 8. 1: 2005 – 2016: Forecasting Accuracy Statistics
Log -returns
SSM DSM KSM SABIC STC NCCY AL RAJHI
BANK ELECTRICITY COMPANY MAD 0.01025 0.01205 0.0052 0.0168 0.0111 0.0151 0.01242 0.01204 MSE 0.00029 0.00033 0.0001 0.0007 0.0005 0.0003 0.00041 0.00044 RMSE 0.01697 0.01827 0.0074 0.02660 0.0239 0.0183 0.02029 0.02098 MAPE 0.85 0.90 0.77 0.90 0.87 0.86 0.88 0.75
Source: Author’s own calculations
Table 8.1 compares one-sample performance from 2005 to 2016 by using the summary of MAD, MSE, RMSE and MAPE to compare models’ degree of production, so that for the markets and individual companies studied, the degree of predictions is compared by applying relative market efficiency.
These results show that DSM Market has the highest level of the efficiency at (0.01205 for MAD, 0.00033 for MSE, 0.01827 for RMSE and 0.90961 for MAPE) when compared with KSM and SSM. However, When individual companies were compared to show the level of efficiency, results are higher for SABIC at (0.0168 for MAD, 0.0007 for MSE, 0.02660 for RMSE, and 0.9035 for MAPE). SABIC is based in Riyadh and is a publicly traded company since 1976. SABIC is the largest and most profitable non-oil companies in the Middle East region, and in terms of total market capitalization, the company accounts for around 18% and also one of
the world’s 10 largest petrochemical manufactures (Tadawul, 2017). NCCY has only been publicly traded since March 2005, but is the most predictable company studied, but this could be explained by insufficient time to develop efficiency. Thus, ranking the index and the individual companies are shown to be meaningful in table 8.2 and 8.3 presenting MSE test for determining the degree of production.
Table 8. 2: From 2005-2016: Ranking using MSE, ARIMA MODEL Statistics Log -returns MSE DSM 0.00033 SSM 0.00029 KSM 0.0001
Source: Author’s own calculations
Table 8. 3: Individual Companies: Ranking Statistics Log -returns MSE SABIC 0.0007 STC 0.0005 Electricity Company 0.00044 Al Rajhi Bank 0.0004 NCCY .0003
Source: Author’s own calculations
The table 8.2 and 8.3 show the efficiency ranking result for the individual companies and stock market indices for countries included in this study. Thus, Kuwait has the least efficient stock market with MSE of 0.0001 and Dubai has the most efficient stock market with MSE of 0.0003. In addition, these results suggest that the aggregate index of different countries is less efficient than individual companies when these are compared. According to Samuelson (1998), efficient market hypothesis works less well for an aggregate stock market index than it does for individual shares. In the same context, Findings from an empirical study by Lim and Brooks (2006) suggest that generally, developed markets are more efficient than those in
emerging countries, but that the level of weak-form market efficiency between different countries varies widely.
Various studies identify market microstructures and irrational behaviours that are different within European stock markets (Sensoy and Tabak, 2015), and the subprime crises that resulted in financial shocks have a significant influence on time path evolution of market efficiency (Sensoy, 2013). Another study suggests that institutional characteristics, capitalization and market turnover of stock markets are factors that influence the changing degree of weak-form efficiency at various stages (Jefferis and Smith 2005). According to (Yiheyis and Cleeve, 2016), the evolution of financial markets depends on foreign exchange availability, monetary policy and domestic economic activity. In a study of the Malaysian Stock Market, it is suggested that short bursts of nonlinear behaviour are often associated with significant political and economic events (Lim et al., 2006). Zalewska-Mitura and Hall (1999) argue that time is needed for price discovery processes to be revealed, and that when stock exchanges are newly established they are not born efficient, so there is no need to investigate if transition economies’ stock markets are efficient. This argument is supported by (Campbell et al., 1998; K.-P. Lim and Brooks, 2006), who report that time is needed to know price discovery processes, as newly established markets cannot be measured for efficiency accurately. Therefore, stock markets become more efficient within a finite amount of time as market microstructures develop and markets operate.
These findings are supported by (Mensi et al., 2018), who test the efficiency market for five GCC stock market indexes and comparing them to what obtains globally. Their results indicate that The GCC stock market is less efficient than what obtains globally. In addition, the Kuwaiti stock market is the least inefficient in the short-term compared with the remaining markets. Other studies by Rejichi et al.(2014) applied the Hurst exponent to test these six stock markets’ indices that Jordan, Turkey, Kuwait, Saudi Arabia and the UAE from the MENA region daily closing prices and 26 sector indices from 2000 to 2007. The study reports that the degree of efficiency improved generally by the end of the testing period, but all indices showed varied degrees of efficiency through this time period; however, SSM, DSM and KSM and the other indices studies showed no weak-form efficiency. Moreover, a study of GCC stock markets from 2005 to 2013 examined weak-form efficiency, and suggests that these had experienced periods of not only improved efficiency, but also demonstrated different degrees of time- varying efficiency. That study also ranked the efficiency of stock markets in this region with
the most efficient stock market as the UAE, and then Bahrain and Saudi Arabia, but Oman was adjudged the least efficient market (Charfeddine and Khediri, 2016).
In conclusion, table 8.1 indicates that DSM have the highest degree of efficiency, when compared to Saudi and Dubai stock markets. However, the results between SSM and DSM are very close to each other, but KSM has the lowest efficiency level. In terms of the individual companies that has been chosen form SSM the result indicated that SABIC is, the most efficient company studied and NCCY is the least efficient in Saudi companies listed on the share market. Lastly, it is clear that the individual companies have high level of the efficiency compared to the all-stock market index.