Abstract
In this article we analyse the behaviour of the Nepali stock market and movements of stock prices of selected companies using (i) Efficient Market Hypothesis (EMH) (ii) geometric Brownian motion model (gBm) and (iii) Merton’s jump-diffusion model. Using the daily returns of the NEPSE index and the daily returns of stock prices of selected companies we estimate the geometric Brownian motion model and Merton’s jump-diffusion model. Further, we compare both models to identify the best fit for the Nepali stock market data. Keywords: Black-Scholes model, Efficient Market Hypothesis, geometric Brownian motion, Merton’s jump-diffusion Model, Variance Ratio Test
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