efficiency of indian stock market

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Mishra and Pradhan (2009) tested the weak form of efficiency in Indian capital market keeping

in view the perspective of financial innovations. The results of their research showed that Indian

capital market is weak form inefficient showing that stocks do not follow random walk in India.

The inefficiency of the weak form provides opportunities to the traders to earn supernormal

profits which in turn can provide stimulus to market participants to innovate new financial

products. And when the financial innovations appear in the market, they generate greater

efficiency in the allocation of the risk. Moreover, boom in the financial market generates

efficiency in the allocation of the capital, lowers the cost of capital and contribute to economic

growth. But if the financial innovation goes wrong it can have serious impact over the financial

markets. Flawed financial innovation led to the global financial crisis as there was no

transparency in the product creation, no one knew how the financial products were created and

moreover rating agencies did a terrible job.

Ramasatri (2001) studied the efficiency of the Indian stock market using spectral analysis. This

paper tested the weak form of efficiency after the period of the stock market reforms came into

existence and moreover SEBI was strengthened & online trading was introduced ,i.e., during

1996-98. The results of the paper showed that the daily sensex returns series were random and

the spectral analysis indicates that there is a presence of periodic cycles in the movement of share

prices, which does not support the weak form of efficient market hypothesis.

Mishra (2010) examined the informational efficiency of the Indian stock market taking into

consideration data of BSE for period of 18 years spanning from 1991 to 2009. This paper revisits

the Efficient Market Hypothesis and came to the conclusion that Indian stock market is

inefficient in weak form of hypothesis. And it may be due to the stock market anomalies and

stock market volatility. Moreover this paper states that market inefficiency is an indicative of

sub-optimal allocation of portfolios into capital market of India.

Pandey (2003) carried out a study on the efficiency of Indian stock market and took intoconsideration the data of three stock indices .i.e., CNXdefty, CNX Nifty & CNX Nifty Junior

from the period of 1996 to 2002. The results of this paper conclude Indian stock market is

inefficient. Thus stating that there are undervalued securities in the market from which the

investors can earn abnormal profits. The tests of auto correlation and run test concludes that the

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series of stock indices are random time series. And the auto correlation analysis clearly indicates

that share price does not confirm the applicability of the random walk model in India.

Mishra, P. K. and Pradhan B. B. (2009), Capital Market Efficiency and Financial Innovation A

Perspective Analysis, The Research Network, Vol. 4, No. 1.

Ramasatri, A.S. (2001), Stock Market Efficiency Spectral Analysis, Finance India, Vol. XV,

No. 3.

Mishra, P.K. (2010), Indian Capital Market Revisiting Market Efficiency.

Pandey, A. (2003), Efficiency of Indian Stock Market.