Abstract:
Due to the dynamic nature of capital markets, understanding the informational efficiency of financial markets has become crucial for investors. An implication of an efficient market hypothesis is that no excess returns can be gained from available information, since it is believed that information is priced already in the stock. The objective of this study is to assess market efficiency of the Colombo Stock Exchange (CSE) in Sri Lanka, which is one of the emerging markets in the world. In order to test for weak form efficiency, stationarity of the selected time series is tested using Augmented Dickey-Fuller test. Sri Lanka stock market as a whole and the top three sectors with the highest market capitalization, exhibit random walk processes. Event study methodology is used to assess semi-strong efficiency. Preliminary analysis using both market model and GARCH model revealed that information disclosure of the selected companies has no significant impact on the returns in the CSE as a whole or on the returns of the particular sector.
