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Home»Articles»Test of Random Walk Theory in the National Stock Exchange

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Asian Journal of Managerial Science (AJMS)

Editor Dr. Tan Fee Yean
Print ISSN : 2249 - 6300
Frequency : Quarterly

Test of Random Walk Theory in the National Stock Exchange

Author : S. Mathivannan and M. Selvakumar
Volume 4 No.2 July-December 2015 pp 21-25.

Abstract

Capital market being a vital institution which facilitates economic development. It is true that so many parties are interested in knowing the efficiency of the capital market. The small and medium investors can be motivated to save and invest in the capital market only if their securities in the market are appropriately priced. The information content of events and its disseminations determine the efficiency of the capital market. That is, how quickly and correctly security prices reflect these information show the efficiency of the capital market. The term market efficiency is used to explain the relationship between information and share prices in the capital market. The three forms of market efficiency are weak form, semi – strong form and strong form. A market is considered as weak form if current prices fully reflect all information contained in historical prices. Thus, no investor can devise a trading rule based on past price patterns to earn abnormal return. A market is semi-strong efficient, if stock prices instantly reflect any new publicly available information. A market is said to be strong form efficient, if prices reflect all types of information whether available publicly or privately. It is usually believe that the markets in developing and less developed countries are not efficient in semi-strong form or strong form. In the developed countries, many research studies have been conducted to test the efficiency of the capital market. In India, very few studies have been conducted to test the efficiency of the capital market. The weak form of efficient market hypothesis also known as Random Walk Hypothesis states that at a given point of time, the size and direction of the next price change is at random. Hence, this paper has made an attempt to analyse whether prices in National Stock Exchange follow a random walk process as required by market efficiency.

Keywords

Random Walk Theory, Stock Exchange, Security Analysis and Run Test

Full Text:

References

Asian Journal of Managerial Science (AJMS) is a quarterly international peer-reviewed journal of Managerial Science. One of the objectives of this journal is to disseminate knowledge on various research issues connected with the topics include, but are not limited to:

Accounting, Auditing, Banking, Business strategy, Corporate governance, Entrepreneurship, Financial structure, Capital markets, Health economics, Human resources management, Information systems,Innovation management, Insurance, Marketing, Organization, Production and logistics, Risk management, and Taxation.

Capital market being a vital institution which facilitates economic development. It is true that so many parties are interested in knowing the efficiency of the capital market. The small and medium investors can be motivated to save and invest in the capital market only if their securities in the market are appropriately priced. The information content of events and its disseminations determine the efficiency of the capital market. That is, how quickly and correctly security prices reflect these information show the efficiency of the capital market. The term market efficiency is used to explain the relationship between information and share prices in the capital market. The three forms of market efficiency are weak form, semi – strong form and strong form. A market is considered as weak form if current prices fully reflect all information contained in historical prices. Thus, no investor can devise a trading rule based on past price patterns to earn abnormal return. A market is semi-strong efficient, if stock prices instantly reflect any new publicly available information. A market is said to be strong form efficient, if prices reflect all types of information whether available publicly or privately. It is usually believe that the markets in developing and less developed countries are not efficient in semi-strong form or strong form. In the developed countries, many research studies have been conducted to test the efficiency of the capital market. In India, very few studies have been conducted to test the efficiency of the capital market. The weak form of efficient market hypothesis also known as Random Walk Hypothesis states that at a given point of time, the size and direction of the next price change is at random. Hence, this paper has made an attempt to analyse whether prices in National Stock Exchange follow a random walk process as required by market efficiency.

Editor-in-Chief
Dr. Tan Fee Yean
Department of HRM, Universiti Utara Malaysia, Kedah, Malaysia
[email protected]
Editorial Advisory Board
Dr. Aidil Rizal Bin Shahrin
Department of Finance and Banking, University of Malaya, Malaysia
[email protected]
Dr. Amalendu Bhunia
Department of Commerce, University of Kalyani, West Bengal, India
[email protected]
Dr. Ahmad Zahiruddin Bin Yahya
Department of Accountancy, University of Malaya, Malaysia
[email protected]
Dr. Anil Govindrao Suryavanshi
Department of Commerce & Management, The New college, (Shivaji University), Maharashtra, India
[email protected]
Dr. Ong Lin Dar
Department Of Business Strategy And Policy, University of Malaya, Malaysia
[email protected]
Dr.V.Balachandran
Department of Corporate Secretaryship, Alagappa University,Tamil Nadu, India
[email protected]
Dr. Yeong Wai Chung
Department Of Operation and Management Information, University of Malaya, Malaysia
[email protected]
Prof.V.V.Devi Prasad Kotni
Department of Management Studies,GVP College for Degree & PG Courses, Andhra Pradesh, India
[email protected]
Dr. Quah Chee Heong
Department of Business Strategy and Policy, University of Malaya, Malaysia
[email protected].edu.my
Dr.Subrata Roy
Department of Commerce, Rabindra Mahavidyalaya, West Bengal, India
[email protected]
Dr. Norbani Binti Che Ha
Department of Marketing, University of Malaya, Malaysia
[email protected]
Dr. Tey Lian Seng
Department Of Business Strategy and Policy, University of Malaya,  Malaysia
[email protected]
Dr. Mohammad Nazri Bin Mohd Nor
Department of Business Strategy and Policy, University of Malaya, Malaysia
[email protected]
Dr. Binish Qadri
Research Scholar, Department of Economics, Central University of Kashmir, India
[email protected]
Dr. Khaw Lee Hwei
Department of Finance and Banking, University of Malaya, Malaysia
[email protected]
Dr. V. P. Sriram
Department of Management, Balaji Institute of International Business, Maharashtra, India
[email protected]
Dr. Yusniza Binti Kamarulzaman
Department of Marketing, University of Malaya,  Malaysia
[email protected]
Dr. Kanagi Kanapathy
Department of Operations and Management Information Systems, University of Malaya, Malaysia
[email protected]
Dr. Abd El Salam Mahmoud Abou Kahf
Department of Commerce, Alexandria University, Egypt
[email protected]
Dr. Wong Sek Khin
Department of Business Strategy and Policy, University of Malaya, Malaysia
[email protected]
Dr. Lee Su Teng
Department of Business Strategy and Policy, University of Malaya, Malaysia
[email protected]
Dr. Phoong Seuk Wai
Department of Operation and Management Information System, University of Malaya, Malaysia
[email protected]
Dr. Dennis Palkon
College of Business, Management, Florida Atlantic University
[email protected]

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    Editorial Note

    Editorial Dr. Tan Fee Yean

    Editor-in-Chief
    Dr. Tan Fee Yean
    Department of HRM, Universiti Utara Malaysia, Kedah, Malaysia
    [email protected]
    Editorial Advisory Board
    Dr. Aidil Rizal Bin Shahrin
    Department of Finance and Banking, University of Malaya, Malaysia
    [email protected]
    Dr. Amalendu Bhunia
    Department of Commerce, University of Kalyani, West Bengal, India
    [email protected]
    Dr. Ahmad Zahiruddin Bin Yahya
    Department of Accountancy, University of Malaya, Malaysia
    [email protected]
    Dr. Anil Govindrao Suryavanshi
    Department of Commerce & Management, The New college, (Shivaji University), Maharashtra, India
    [email protected]
    Dr. Ong Lin Dar
    Department Of Business Strategy And Policy, University of Malaya, Malaysia
    [email protected]
    Dr.V.Balachandran
    Department of Corporate Secretaryship, Alagappa University,Tamil Nadu, India
    [email protected]
    Dr. Yeong Wai Chung
    Department Of Operation and Management Information, University of Malaya, Malaysia
    [email protected]
    Prof.V.V.Devi Prasad Kotni
    Department of Management Studies,GVP College for Degree & PG Courses, Andhra Pradesh, India
    [email protected]
    Dr. Quah Chee Heong
    Department of Business Strategy and Policy, University of Malaya, Malaysia
    [email protected].edu.my
    Dr.Subrata Roy
    Department of Commerce, Rabindra Mahavidyalaya, West Bengal, India
    [email protected]
    Dr. Norbani Binti Che Ha
    Department of Marketing, University of Malaya, Malaysia
    [email protected]
    Dr. Tey Lian Seng
    Department Of Business Strategy and Policy, University of Malaya,  Malaysia
    [email protected]
    Dr. Mohammad Nazri Bin Mohd Nor
    Department of Business Strategy and Policy, University of Malaya, Malaysia
    [email protected]
    Dr. Binish Qadri
    Research Scholar, Department of Economics, Central University of Kashmir, India
    [email protected]
    Dr. Khaw Lee Hwei
    Department of Finance and Banking, University of Malaya, Malaysia
    [email protected]
    Dr. V. P. Sriram
    Department of Management, Balaji Institute of International Business, Maharashtra, India
    [email protected]
    Dr. Yusniza Binti Kamarulzaman
    Department of Marketing, University of Malaya,  Malaysia
    [email protected]
    Dr. Kanagi Kanapathy
    Department of Operations and Management Information Systems, University of Malaya, Malaysia
    [email protected]
    Dr. Abd El Salam Mahmoud Abou Kahf
    Department of Commerce, Alexandria University, Egypt
    [email protected]
    Dr. Wong Sek Khin
    Department of Business Strategy and Policy, University of Malaya, Malaysia
    [email protected]
    Dr. Lee Su Teng
    Department of Business Strategy and Policy, University of Malaya, Malaysia
    [email protected]
    Dr. Phoong Seuk Wai
    Department of Operation and Management Information System, University of Malaya, Malaysia
    [email protected]
    Dr. Dennis Palkon
    College of Business, Management, Florida Atlantic University
    [email protected]

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