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- Title
AN EMPIRICAL STUDY ON THE RANDOM WALK HYPOTHESIS AND WEAK FORM MARKET EFFICIENCY: EVIDENCE FROM NATIONAL STOCK EXCHANGE OF INDIA.
- Authors
DAS, PRIYANKA
- Abstract
Numerous studies were conducted all over the world to test Random Walk Hypothesis (RWH) in actual market conditions which led to controversial results. Efficient market hypothesis (EMH) states that financial markets are "informationally efficient", implying that current prices fully and instantaneously reflect all private or publicly available or historical information of the concerned security in the market. This article has attempted to empirically test whether Nifty 50, Nifty 200 and Nifty 500 follows random walk model and conforms to Efficient Market Hypothesis. Daily closing prices of the selected sample have been collected from the official website of NSE for a period of 5 years from January 1, 2015 to December 31, 2019 and daily continuously compounded rates of returns have been calculated from the same. K-S test result showed that the returns does not follow normal distribution. Runs Test results evidenced significant P value of Nifty 500 Index returns which rejects the null hypothesis of the weak form of efficiency with 99% level of confidence but Nifty 50 and Nifty 200 index returns showed randomness in its return behavior. To resolve this contradiction, ADF and P-P test of stationarity were performed which confirmed inefficiency of the Indian stock market in terms of all the three indices of our study Further, significant P values of Variance Ratio Test also led us to the final conclusion that Indian stock market do not follow random walk movement and hence is inefficient in the weak form. This in turn provides an opportunity to the investors to earn super-normal gain by utilizing past information as share prices do not adjust instantaneously in response to any new information release in the market.
- Subjects
NATIONAL Stock Exchange of India Ltd.; RANDOM walks; EFFICIENT market theory; STOCK exchanges; ANALYSIS of variance; FINANCIAL markets
- Publication
CLEAR International Journal of Research in Commerce & Management, 2020, Vol 11, Issue 8, p18
- ISSN
2249-4561
- Publication type
Article