Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Empirical evidence of Efficient market hypothesis on the Indian Stock markets in the context of the Global Financial crisis By: Rashmi Narayanswamy Senior Lecturer, BVDU, Amplify Abstract: The study of the stock market efficiency in the Indian context has been the objective of many researchers across the globe since the last few decades. In the ideal efficient market, everyone knows all possible- to-know information simultaneously, interprets it similarly and behaves rationally. But, the evidence is mixed on whether the market is efficient. While some past studies have concluded that the stock markets are efficient, other studies cast doubt on this conclusion. Stock market efficiency suggests that stock prices incorporate all relevant information when that information is readily available and widely disseminated, which implies that there is no systematic way to exploit trading opportunities and acquire excess profits. This means stock prices follow what statisticians call a ‘random walk’ which holds that stock price changes are independent of one another. In the normal course of events, the level of prices, i.e., the summation of these random movements will show movements that look like a cycle but in fact are not. This paper is an attempt to provide some empirical evidence on the efficiency of the Indian stock market in the context of recent global financial crisis. The study by employing the unit tests on the sample of daily stock returns presents the evidence of weak form market efficiency in India. Monthly observations were taken for the period January 2004 to December 2009. Monthly returns are not normally distributed as they are negatively skewed. The study further examines the mean reversion implication of market inefficiency and suggests the existence of mean reversion illusion in India. In aggregate, it was concluded that the monthly prices do not follow random walks in India. The investors can take the stream of benefits through arbitrage process from profitable opportunities across these markets. This study intends to point out that the stock markets in India have reached a state where any investor can build his / her own portfolio without any ‘expert’ guidance and still earn returns comparable to professionally managed funds. Further, the study also attempts to test out the methodology of random investing by generating a dynamic random investing model using spread sheet. Key Words: Indian Stock Market, Efficient Market Hypothesis, Random walk theory, Financial crisis, Mean Reversion.