A method to test weak-form market efficiency from sectoral indices of the WAEMU stock exchange: A wavelet analysis

Abstract

This study assesses the efficiency of the West African Economic and Monetary Union (WAEMU) regional stock exchange using daily data on its seven (7) sectoral indices from December 31, 2013, to January 4, 2019. To this end, we analyze the market structure and calculate the generalized Hurst index by using the discrete wavelet transformation (DWT) and wavelet leader transformation (WLT) approaches. Our conclusions can be summarized as follows: first, this study highlights the multifractal nature of the WAEMU stock market. Second, the Hurst generalized index reveals a persistent or nonpersistent process depending on the sector, according to the q chosen or the method used (DWT or WLT). The dynamics of the indices reveal the characteristics of short memory or, in some cases, long memory, and the efficient market hypothesis is rejected.

Keywords

• Efficient market hypothesis
• Wavelet
• Hurst exponent
• WAEMU stock exchange
• Sector index