Persistence in the Indian Stock Market Returns: An Application of Variance Ratio Test

Abstract

This paper by Madhusoodanan applies the variance ratio tests under the null hypotheses of homoscedasticity as well as heteroscedasticity, to the Indian stock market. The tests are conducted at the aggregate level of market indices and disaggregate level of individual stocks. The results indicate that random walk hypothesis cannot be accepted in the Indian market. Both the market indices the author tested showed persistent behaviour, while most of the individual stocks also showed evidence on persistence. The variance ratios were significant under heteroscedasticity in most of the cases where it was significant under homoscedasticity assumption. This implies that heteroscedasticity does not play a major role in the Indian market.