Empirical investigation of market efficiency in the Borsa İstanbul electricity, gas, and water sector

Abstract

Exploring the efficiency of financial markets has remained a prominent area of interest for researchers and market participants. However, the debate on market efficiency continues, with studies examining different sectors and markets to assess the reliability of the efficient market hypothesis. This study investigates the weak-form efficiency of the Borsa Istanbul Electricity, Gas, and Water (EGW) sector by applying structural break unit root tests. Monthly stock price data for 19 publicly traded EGW companies and the BIST Electricity Index (XELKT), from their initial listing dates through May 2023, are analyzed using the Lee-Strazicich unit root tests with one and two structural breaks. Additionally, the Karavias and Tzavalis (2014) panel unit root test is employed to assess sector-wide price behavior while accounting for structural breaks and cross-sectional dependence. The findings reveal that most stock price series are stationary with structural breaks, indicating deviations from a random walk and thus rejecting the weak-form efficient market hypothesis for the sector. Structural breaks are primarily observed during major economic and geopolitical events, such as the coronavirus disease 2019 (COVID-19) pandemic and the Russia–Ukraine war. This study contributes to the literature by addressing a gap in market efficiency research through the application of structural break unit root tests in a sector-specific context.

Keywords

• Efficient market hypothesis
• BIST
• Energy companies
• Electricity gas and water sector

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