Efficiency Hypothesis of the Stock Markets: A Case of Indian Securities

International Journal of Business and Management, 2009

14 Pages Posted: 2 May 2011 Last revised: 12 May 2011

See all articles by Gagan Deep Sharma

Gagan Deep Sharma

Guru Gobind Singh Indraprastha (GGSIP) University

Mandeep Mahendru

Gian Jyoti Institute of Management & Technology

Date Written: March 1, 2009

Abstract

The paper attempts to investigate the validity of the Efficient Market Hypothesis on the Indian Securities Market. Initially, the paper discusses the definitions and types of the EMH, as also the literature available on the same. Taking a sample of eleven securities listed on the Bombay Stock Exchange (BSE), the oldest stock exchange of Asia, we apply the runs tests and the autocorrelation tests in order to judge the efficiency of the Stock Markets. The Autocorrelation test when directly applied to share prices gives conflicting results with Runs test and thus, making it difficult to reach a definite conclusion. Then, the autocorrelation test is applied to first differenced series, which gives satisfactory results. In a nutshell, that the effect of stock prices for the sample companies on future prices is very meager and an investor cannot reap profits by using the share price data as the current share prices already reflect the effect of past share prices.

Keywords: Efficient Market Hypothesis (EMH), Indian Securities Market, Bombay Stock Exchange (BSE), Autocorrelation Test, Runs Test

Suggested Citation

Sharma, Gagan Deep and Mahendru, Mandeep, Efficiency Hypothesis of the Stock Markets: A Case of Indian Securities (March 1, 2009). International Journal of Business and Management, 2009, Available at SSRN: https://ssrn.com/abstract=1827522

Gagan Deep Sharma (Contact Author)

Guru Gobind Singh Indraprastha (GGSIP) University ( email )

Sector 16 C,
Dwarka
Delhi, Delhi 110078
India

Mandeep Mahendru

Gian Jyoti Institute of Management & Technology ( email )

Phase - II
Mohali, Punjab
India

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