Empirical Evidence on Weak Form of Efficiency in Indian Stock Market

Abstract

The article is an empirical study to examine the validity of weak form of efficient market hypothesis in two most popular indices of Indian stock market. For examining the hypothesis whether Indian stock markets are efficient in the weak form, two kinds of tests are conducted. These are parametric and non-parametric tests for randomness, that is, unit root test, autocorrelation test, runs test and variance ratio test. The results suggest that the Indian stock market does not show the characteristics of random walk and as such, is not efficient in the weak form in daily and weekly returns. However, the monthly returns are found to be inefficient only as per variance ratio test. Thus, the investors can avail excess returns by predicting the future returns as all return series present an opportunity to investors to gain from the pattern.