Efficient Market Hypothesis: Testing for Price Predictability on the OMX Stockholm 30 Index

Abstract

The use of historical information to predict future pricing of equities has been a topic of debate among the financial community for some time. This study examines the issue by testing for statistical significance on lagged price values, utilizing an autoregressive model. In the tests we use data from the OMX Stockholm 30 index. The study utilizes an autoregressive model (AR) to check two different time frames simultaneously. In part we examine lagged values in the short run whilst also observing lagged values for longer time periods. There are three tests in total, one testing for the 2015-16 period, one for the 2014-16, and finally one for the 2014-15 period. The test results obtained show that the strong form of EMH does not hold on the OMX Stockholm 30 index due to the finding that there is statistical significance in some of the lagged variables, which implies that historical prices do affect future prices.