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The Random-Walk Hypothesis on the Indian Stock Market

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  • Ankita Mishra
  • Vinod Mishra
  • Russell Smyth

Abstract

This study tests the random walk hypothesis for the Indian stock market. Using 19 years of monthly data on six indices from the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), this study applies three different unit root tests with two structural breaks to analyse the random walk hypothesis. We find that unit root tests that allow for two structural breaks alone are not able to reject the unit root null; however, a recently developed unit root test that simultaneously accounts for heteroskedasticity and structural breaks, finds that the stock indices are mean reverting. Our results point to the importance of addressing heteroskedasticity when testing for a random walk with high frequency financial data.

Suggested Citation

  • Ankita Mishra & Vinod Mishra & Russell Smyth, 2014. "The Random-Walk Hypothesis on the Indian Stock Market," Monash Economics Working Papers 07-14, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2014-07
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2014/0714randommishrasmyth.pdf
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    Cited by:

    1. Narayan, Paresh Kumar & Ahmed, Huson Ali, 2014. "Importance of skewness in decision making: Evidence from the Indian stock exchange," Global Finance Journal, Elsevier, vol. 25(3), pages 260-269.
    2. Mishra, Vinod & Smyth, Russell, 2014. "Is monthly US natural gas consumption stationary? New evidence from a GARCH unit root test with structural breaks," Energy Policy, Elsevier, vol. 69(C), pages 258-262.
    3. Hooi Hooi Lean & Vinod Mishra & Russell Smyth, 2016. "Conditional convergence in US disaggregated petroleum consumption at the sector level," Applied Economics, Taylor & Francis Journals, vol. 48(32), pages 3049-3061, July.
    4. G. Sheelapriya & R. Murugesan, 2014. "Random walk analysis with multiple structural breaks: Case study in emerging market of S&P BSE sectoral indices stocks," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 4(11), pages 503-513, November.
    5. repec:jfr:rwe111:v:8:y:2017:i:2:p:12-24 is not listed on IDEAS
    6. repec:eee:ecmode:v:70:y:2018:i:c:p:429-437 is not listed on IDEAS

    More about this item

    Keywords

    India; Unit root; Structural Break; Stock Market; Random Walk;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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