Testing Weak Form Efficiency: Firm Level Analysis at the National Stock Exchange
The Indian Economic Journal, Vol. 55, No., 2. pp. 162-175, July-September 2007
16 Pages Posted: 8 Nov 2010 Last revised: 12 Jan 2015
Date Written: 2007
This paper attempts to seek evidence for the weak form of efficient market hypotheses using the daily data on returns for stock prices of 24 listed firms on the Indian stock market during the period 2000-2004. These 24 firms have a major presence in terms of weights in the indices, trading volumes and market capitalisation. The Jarque-Bera test, unit root test, autocorrelation function, Ljung-Box (Q) statistics and Kolmogorov-Smirnov (K-S) test have been used for the analysis. The distributions of the underlying variables are not normal for all the firms through the Jarque-Bera test and for most of the firms through the K-S test. The Q statistics which tests the joint null hypothesis of zero autocorrelation, shows that the number of firms, which are inefficient, comes down from 13 firms in the first period to 6 firms in the second period. The results vary across tests and sub periods indicating that stock prices for most of the firms do not support the hypothesis of independence and randomness. The important firms, which have significant autocorrelation in both periods, are ONGC, Infosys, SAIL and Grasim. The existence of informational inefficiency is an incentive for investors to pick up under valued stocks on the Indian stock market.
Suggested Citation: Suggested Citation