A study on weak form of market efficiency during the period of global financial crisis in the form of random walk on Indian capital market

A study on weak form of market efficiency during the period of global financial crisis in the... Purpose – This paper aims to study the weak form of efficiency of Indian capital market during the period of global financial crisis in the form of random walk. Design/methodology/approach – The study considered daily closing prices of S&P CNX Nifty, BSE, CNX100, S&P CNX 500 from April 1, 2005 to March 31, 2010. The data source is the equity market segment of NSE and BSE. Both parametric and nonparametric tests (“ ex‐post s” in nature) are applied for the purpose of testing weak‐form efficiency. The parametric tests include Augmented Dickey‐Fuller (ADF) unit root tests and nonparametric tests include Phillips‐Perron (PP) unit root tests and Run test. ADF tests use a parametric autoregressive structure to capture serial correlation and PP tests use non‐parametric corrections based on estimates of the long‐run variance of ΔY t . Findings – The results suggested that the Indian stock market was efficient in its weak form during the period of recession. It means that investors should not be able to consistently earn abnormal gains by analysing the historical prices. Hence one should not be able to make a profit from using something that everybody else knows. Practical implications – The study reports that all the stocks in these selected indices are fundamentally strong and their prices are not influenced largely by historical prices and other relevant factors which came from industry and any other information that is publically available. Thus it can be concluded that the Indian stock market was informationally efficient and no investor can usurp any privileged information to make abnormal profits. Originality/value – Where past studies have examined the weak‐form of efficiency of various markets and the effect of globalisation and global financial crisis on the various sectors of developing and emerging economies, this paper attempts to study the weak form of efficiency of the Indian capital market in the period of recession in the form of random walk. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Advances in Management Research Emerald Publishing

A study on weak form of market efficiency during the period of global financial crisis in the form of random walk on Indian capital market

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Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
0972-7981
DOI
10.1108/09727981311327802
Publisher site
See Article on Publisher Site

Abstract

Purpose – This paper aims to study the weak form of efficiency of Indian capital market during the period of global financial crisis in the form of random walk. Design/methodology/approach – The study considered daily closing prices of S&P CNX Nifty, BSE, CNX100, S&P CNX 500 from April 1, 2005 to March 31, 2010. The data source is the equity market segment of NSE and BSE. Both parametric and nonparametric tests (“ ex‐post s” in nature) are applied for the purpose of testing weak‐form efficiency. The parametric tests include Augmented Dickey‐Fuller (ADF) unit root tests and nonparametric tests include Phillips‐Perron (PP) unit root tests and Run test. ADF tests use a parametric autoregressive structure to capture serial correlation and PP tests use non‐parametric corrections based on estimates of the long‐run variance of ΔY t . Findings – The results suggested that the Indian stock market was efficient in its weak form during the period of recession. It means that investors should not be able to consistently earn abnormal gains by analysing the historical prices. Hence one should not be able to make a profit from using something that everybody else knows. Practical implications – The study reports that all the stocks in these selected indices are fundamentally strong and their prices are not influenced largely by historical prices and other relevant factors which came from industry and any other information that is publically available. Thus it can be concluded that the Indian stock market was informationally efficient and no investor can usurp any privileged information to make abnormal profits. Originality/value – Where past studies have examined the weak‐form of efficiency of various markets and the effect of globalisation and global financial crisis on the various sectors of developing and emerging economies, this paper attempts to study the weak form of efficiency of the Indian capital market in the period of recession in the form of random walk.

Journal

Journal of Advances in Management ResearchEmerald Publishing

Published: May 17, 2013

Keywords: Stock market efficiency; Random walk hypothesis; Recession; Unit root tests; Stock markets; India

References

  • Market efficiency and the global financial crisis
    Easton, S.; Kerin, P.
  • Tests of weak form efficiency in the middle east emerging markets
    Omran, F.

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