Testing Weak Form of Market Efficiency of Bombay Stock Exchange and National Stock Exchange

Sharma Rakesh Kumar and Kiran Ravi (2017). Testing weak form of market efficiency of Bombay Stock Exchange and National Stock Exchange. Int. J. Accounting and Finance, Vol. 7, No. 2, pp -141-162.

Posted: 21 Aug 2017  

Rakesh Kumar Sharma

Thapar University Patiala

Date Written: july 1, 2017

Abstract

The paper focuses on how the anticipation of investors regarding future returns is reflected on the share price. The precision and rapidity in which market transforms the expectation and anticipation into prices, measures the market efficiency. Weak form of market efficiency is one of the different degrees of efficient market hypothesis (EMH) that claims all past prices of a stock are reflected in today’s stock price. Therefore, technical analysis cannot be used to predict and beat a market. In this the authors have worked on the weak form efficiency of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), investigating this by using four series of tests viz. Run test, serial correlation test, unit root test and variance ratio test. These tests are performed on recent data, using the last ten years’ monthly BSE and NSE data from the period from 2004 to 2014. The results wrap up that monthly returns do not follow random walks in both the stock exchanges. This applies to both BSE and NSE, hence proving them as weak and inefficient.

Keywords: efficient market hypothesis; random walk theory; serial correlation test; run test; unit root test; variance ratio test

JEL Classification: O16, R53, G10, E44

Suggested Citation

Sharma, Rakesh Kumar, Testing Weak Form of Market Efficiency of Bombay Stock Exchange and National Stock Exchange (july 1, 2017). Sharma Rakesh Kumar and Kiran Ravi (2017). Testing weak form of market efficiency of Bombay Stock Exchange and National Stock Exchange. Int. J. Accounting and Finance, Vol. 7, No. 2, pp -141-162. . Available at SSRN: https://ssrn.com/abstract=3019866

Rakesh Kumar Sharma (Contact Author)

Thapar University Patiala ( email )

Bhadson Road
Thapar University Patiala
Patiala, IN Punjab 147004
India
0175-2393254 (Phone)

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