Asian Journal of Managerial Science (AJMS)
Test of Random Walk Theory in the National Stock ExchangeAuthor : S. Mathivannan and M. Selvakumar
Volume 4 No.2 July-December 2015 pp 21-25.
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.
Random Walk Theory, Stock Exchange, Security Analysis and Run Test