Random Walk Characteristics of Stock Returns

Gourishankar S. Hiremath ()
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Gourishankar S. Hiremath: Department of Humanities and Social Science, IIT Kharagpur

Chapter Chapter 2 in Indian Stock Market, 2014, pp 19-39 from Springer

Abstract: Abstract This chapter studies the behavior of stock returns in India. For this purpose, data from 1997 to 2010 of 14 indices traded on the National stock exchange (NSE) and Bombay stock exchange (BSE) are used and several parametric and non-parametric methods are employed to empirically test the random walk characteristics of stock returns and examine the weak form efficiency of the Indian stock market. The results from parametric tests are mixed and validity of random walk hypothesis (RWH) is suggested only for large cap and high liquid indices traded on the BSE. However, the same is not true in the case of NSE index returns. The non-parametric tests resoundingly reject the null of random walk for the chosen indices. The results broadly suggest non-random walk behavior of stock returns and invalidate the weak form efficiency in case of India. The evidence of dependence in stock returns call for appropriate regulatory and policy changes to ensure further dissemination of information and quick and correct price aggregation in the market.

Keywords: Random walk; Market efficiency; Weak form of efficiency; Stochastic process; Abnormal returns; Variance ratio; Autocorrelation; Serial dependence (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-81-322-1590-5_2

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DOI: 10.1007/978-81-322-1590-5_2

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