Empirical Evidence on Weak Form Efficiency of Indian Stock Market
Thomas Asha E. and M C. Dileep (2010). Empirical Evidence on Weak Form Efficiency of Indian Stock Market. ASBM Journal of Management, 3, 1&2, 89-100. ISSN 0974-8512
24 Pages Posted: 14 Mar 2018
Date Written: March 12, 2009
Efficient Market Hypothesis is an investment theory which states that it is impossible to ‘beat the market’ because market efficiency causes exiting share prices to always incorporate and reflect all relevant information. Stocks are always traded at their fair value on stock exchanges and so the scope of residual returns, either by purchasing undervalued stocks or by selling the stocks for inflated prices is impossible. Ever since Fama (1965) propounded his famous Efficient Market Hypothesis (EMH), a number of empirical studies have been conducted to test its validity, both in developed markets and as well as in emerging markets. The contradictory nature of the results and the change in the current market scenario encouraged the researcher to conduct a research in the market efficiency of Indian Stock Market. One cannot beat the market by using historical information on prices of securities if the market is said to be Weak Form efficient. Statistical tools like autocorrelation and run test were used to test the Weak Form market efficiency. One-sample Kolmogorov-Smirnov test was used to find out how well a data series fits a particular distribution. The null hypothesis of the study was whether the Indian Stock Market is Weak Form efficient. The results of both non-parametric (Kolmogrov –Smirnov goodness of fit test and run test) and parametric test (Auto-correlation test) provide evidence that the share prices do not follow random walk model and the significant autocorrelation co-efficient at different lags reject the null hypothesis of weak-form efficiency.
Keywords: Indian Stock Market, Market Efficiency, Weak Form Efficiency, Nifty Index, Fair Value
JEL Classification: G00, G02
Suggested Citation: Suggested Citation