The effect of the establishment of an organized exchange on weak form efficiency: the case of Istanbul Gold Exchange. 1998.
This paper assesses the effect of the formation of a regulated gold exchange on the efficiency of the gold market in Turkey. It does this by dividing the sample in three parts, before any regulation when prices were set in the grand bazar, a transition period to the formation of the Istanbul Gold Exchange (IGE) and a period where prices were set under the new regulated structure.
While the results indicate that the returns of gold in all three periods were non-normal the final regulated period is shown to be approaching a normal distribution. The level of autocorrelation is also lowest in the period on the IGE, with none apparent at any lag length. However when the three subsamples are tested to assess whether the returns are random all three fail; indicating that the market is not fully efficient even in the third period. Overall it does seem that the formation has improved the efficiency of the Turkish gold market, though if it cannot be thought of as fully efficient in the period under examination.
Data: Daily data, January 1992 to October 1994, gold prices from Turkey. 1 set of data from gold price set at the grand bazar, 2nd period is the transition to the exchange and third phase comes from prices set at the Istanbul Gold Exchange. Unclear whether dollar gold prices or domestic currency prices are used in the analysis.
Methodology: Jarque-Bera test for normality, runs tests, tests for serial correlation
Citation: Muradoglu, Gülnur, Nese Akkaya, and Jamel Chafra. “The effect of the establishment of an organized exchange on weak form efficiency: the case of Istanbul Gold Exchange.” The European Journal of Finance 4.1 (1998): 85-92.
Abstract: Evidence is presented from IGE (the Istanbul Gold Exchange) that an institutional regulation such as the establishment of an organized exchange is an important component of informational efficiency that should not be disregarded in the process of financial liberalization.