Market efficiency in India: A study of Random Walk Hypothesis of Indian Stock Market( BSE)

Abstract

As long as financial markets are concerned, for many years’ economists, statisticians and financial analyst have been interested in
developing and testing models of stock price behaviour and their forecast. This study examines whether the Indian stock market
is efficient if the stock returns follow a random walk. The study employs daily closing prices of SENSEX (Sensitivity Index of BSE
of India) for a time period of 01 July 1997- 03 Dec 2014. The existence of random walk for BSE Index has been examined through
autocorrelation, the Box- Ljung test statistics and the run test and finds that the Indian stock market was not efficient in the weak
form during the testing period. The results suggest that the stock prices in India do not reflect all the information in the past stock
prices and abnormal returns can be achieved by investors exploiting the market inefficiency.