The Efficiency Testing of Weak Form of the Indian Stock Market

The efficient market hypothesis states that stock prices in financial markets should reflect to all information available; as a result of this, prices shouldbe consistent with fundamentals. The efficiency the stock market should not be overstated. Efficient Stock Markets make available the funds for the developmental purposes. They give opportunities to investors to diversify their variety of assets. In general, ideal market is the one in which prices provide accurate signals for resources allocation so that firms can make productive investment decisions and investors can choose among the stocks under the assumption that shock prices fully reflect all the available information at any time. A market in which prices fully reflect all available information is called efficient. This paper takes into consideration twenty three stocks in different sectors of National Stock Exchange and tries to investigate the efficiency of Indian stock market. The random walk hypothesis is examined using serial autocorrelation test, a non-parametric runs test. This study examines the random walk hypothesis to determine the validity of weak-form efficiency for Indian stock markets. Daily returns from 1^st April 2004 to 31^st March 2014 used for the study. The empirical results of this study support previous studies that Indian stock markets are weak-form inefficient. With the exception of the results from serial autocorrelation test, runs test are similar and reject random walk hypothesis for Indian stock markets. The results show that the behaviour of share price displays considerably more violations of the random walk hypothesis.