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Is the Indian Stock Market efficient - A comprehensive study of Bombay Stock Exchange Indices

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  • Achal Awasthi
  • Oleg Malafeyev

Abstract

How an investor invests in the market is largely influenced by the market efficiency because if a market is efficient, it is extremely difficult to make excessive returns because in an efficient market there will be no undervalued securities i.e. securities whose value is less than its assumed intrinsic value, which offer returns that are higher than the deserved expected returns, given their risk. However, there is a possibility of making excessive returns if the market is not efficient. This article analyses the five popular stock indices of BSE. This would not only test the efficiency of the Indian Stock Market but also test the random walk nature of the stock market. The study undertaken in this paper has provided strong evidence in favor of the inefficient form of the Indian Stock Market. The series of stock indices in the Indian Stock Market are found to be biased random time series and the random walk model can't be applied in the Indian Stock Market. This study confirms that there is a drift in market efficiency and investors can capitalize on this by correctly choosing the securities that are undervalued.

Suggested Citation

  • Achal Awasthi & Oleg Malafeyev, 2015. "Is the Indian Stock Market efficient - A comprehensive study of Bombay Stock Exchange Indices," Papers 1510.03704, arXiv.org.
    • Handle: RePEc:arx:papers:1510.03704
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    References listed on IDEAS

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    1. Maria Rosa Borges, 2011. "Random walk tests for the Lisbon stock market," Applied Economics, Taylor & Francis Journals, vol. 43(5), pages 631-639.
    2. Truong Dong Loc & Ger Lanjouw & Robert Lensink, 2010. "Stock-market efficiency in thin-trading markets: the case of the Vietnamese stock market," Applied Economics, Taylor & Francis Journals, vol. 42(27), pages 3519-3532.
    3. Mikio Ito & Akihiko Noda & Tatsuma Wada, 2014. "International stock market efficiency: a non-Bayesian time-varying model approach," Applied Economics, Taylor & Francis Journals, vol. 46(23), pages 2744-2754, August.
    4. Jasim Al-Ajmi & J. H. Kim, 2012. "Are Gulf stock markets efficient? Evidence from new multiple variance ratio tests," Applied Economics, Taylor & Francis Journals, vol. 44(14), pages 1737-1747, May.
    5. Vassili N Kolokoltsov & Oleg A Malafeyev, 2010. "Understanding Game Theory:Introduction to the Analysis of Many Agent Systems with Competition and Cooperation," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7564, February.
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    Cited by:

    1. Devansh Jain & Manthan Patel & Aman Narsaria & Siddharth Malik, 2020. "A Study on the Efficiency of the Indian Stock Market," Papers 2012.01160, arXiv.org.

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