This paper examines the efficiency of the Palestine Security Exchange (PSE) at the
weak-level for 35 stocks listed in the market by using daily observations of the PSE
indices: Alquds index, general index, and sector indices. Parametric and nonparametric
tests for examining the randomness of the PSE stock prices were utilized. The parametric
tests include serialcorrelation test, and Augmented Dickey-Fuller (ADF) unit root tests. The
nonparametric tests include runs test, and Phillips-Peron (PP) unit root test. The study
utilized nonparametric tests for investigating the efficiency of the PSE at the weak level,
especially, the results of Jarque-Bera test for normality showed that the daily returns of the
PSE are not normally distributed. The serial correlation tests and the runs tests both
revealed that the daily returns are inefficient at the weak-form. Also, the unit root tests
(Augmented Dickey-Fuller (ADF) unit root test and Phillips-Peron (PP) unit root test)
suggest the weak-form inefficiency in the return series. However, the PSE is inefficient at
the weak level; as a result, this is likely to be an evidence that the prudent investor who
deals with the PSE will achieve abnormal returns using historical data of stock prices, and
trading volume.
This study aims at providing an idea about the directional effect of working capital management and liquidity on prof-itability and vice versa. Econometric techniques of the unit root tests, co-integration, and two-step Engle and Granger method with error correction model are all applied on a panel data for 11th manufacturing firms listed in the PEX over the period from 2007 to 2012. The findings show that there is a bidirectional causal relationship between working capi-tal management and profitability, and a unidirectional causal relationship running from liquidity to profitability. Ac-cordingly, the paper concludes, in its attempt to investigate the directional long run relationship between gross operating profit, cash conversion cycle and current ratio, that managers should concentrate on managing working capital effi-ciently in order to generate cash and profits to their firms, besides mangers of profitable firms tend to manage their working capital efficiently. For policy makers, this study, confirms the necessity of future researches about efficiency of working capital management, tradeoff between liquidity and profitability, and directional relationship of components of working capital management on profitability.