A test of market efficiency on investment performance of equity shares

Market Efficiency has been a subject of main debate of traditional finance for a long period of time. It emphasizes that security prices are rationally connected to many logical and psychological realities and always incorporate all the information available to the market. In this way, securities markets are seen as efficient in reflecting information about individual stocks or about the stock market as a whole. Market efficiency is in essence an extension of the zero profit competitive equilibrium condition from the certainty world of classical price theory to the dynamic behavior of prices in speculative markets under conditions of uncertainty. Risk and return is the core part in investment decision making process. Risk-return tradeoff is the meaningful deciding point; this can be computed with the help of capital asset pricing model. It is the best tool to measure risk and return content involved in the stocks. In this study risk and return is calculated by using CAPM and attempts made to test the relationship between risk and return is linear. Beta and necessary statistics calculated for testing the hypothesis framed for this study. This study evidence there is no strong efficiency found in the Indian market.