Efficient Market Hypothesis: Some evidences from Indian Forex market

Efficient market hypothesis - the idea that competitive financial markets ruthlessly exploit all available information when setting security prices - has been singled out for particular attention. Even though it continues to be the source of important and enduring insights as in the case of all theories, market efficiency too has major limitations. The purpose of this paper is to examine the weak form of market efficiency in the Indian forex market by using a family of variance ratio (VR) tests. Daily bilateral rates of Indian rupee against Dollar, Euro, Pound and Yen have taken from period of 4^th Jan 1999 to 10 September 2013 have been used for this study. Three individual variance ratio tests: LoMcKinley, Wright and Choi as well as three joint variance ratio tests Chen-Deo, Chow Denning and Wald were used for the purpose of analysis. After analyzing the results from both individual and joint variance ratio tests, it is evident that the data doesn't support the hypothesis and it was concluded that foreign exchange market of India is not weak form efficient.