Abstract:
Efficient market is one in which prices fully reflect available information. An implication of an
efficient market is that no excess returns can be made from this information because current
prices already reflect the information. However, excess returns (if any) should not be statistically
significant from zero. Market efficiency depends on the ability of traders to devote the time and
resources to gather and disseminate information. The objective of the study is to find out the
market efficiency of the CSE in Sri Lanka. ‘Event study’ methodology is applied to investigate
Market efficiency. The results revealed that there is an evidence of an anticipatotary effect
(CAARs = 5.67%) during the pre announcement period (-10,-1) because of information leakage
and also large CAAR (5.76%) is observed during the period of (0, 10) due to investors do not
adjust quickly to the information and a considerable amount of time passes before the prices
fully incorporates relevant information in dividends.
