TESTING EFFICIENT MARKET HYPOTHESIS FOR INDIAN STOCK

MARKET
Deep Arora1
Dr. Shikha Bhatia2

ABSTRACT

A stock market in which the future stock prices can be ascertained by use of unavailable public
or private information, can offer investors greater and higher returns to those who have access to
and use this information. If this becomes possible then any one can be a winner by investing
wisely, thus, garnering higher returns. However, Maurice Kendall in 1953 analysed that stock
prices do not follow a predictable pattern, rather follow a random walk. This means that the
stocks traded in the market are efficiently priced, the current price of the stock at which it is
being traded reflects all the available information to the market, and thus, there is no guarantee to
be a winner. Efficient Market Hypothesis (EMH) talks about the notion that stock prices reflect
all available information. According to EMH, a market can be of three different efficient forms
depending on the amount of information available viz: weak, semi strong and strong form of
hypothesis.

The purpose of this study is to determine the efficient form of Indian Stock Market. For the
purpose of this study, daily closing values of NIFTY are taken for a period of 10 years from May
2004 to August 2014. Run tests, correlation tests, unit root test, descriptive statistics, non
parametric tests, augmented dickey fuller test and GARCH tests will be used on the sample data
for analysis purpose. The results obtained can be used to know the form of Indian stock market
and whether chances of making profits by use of information are available or not.

Keywords: Efficient Market Hypothesis (EMH), random walk, Indian stock market, GARCH

Presented at Fore International Finance Conference (FIFC)-2014, November 27-28, 2014 at

Fore School of Business, New Delhi.

1
Student, PGDM, Jaipuria Institute of Management, A-32A, Sector-62, Noida - 201 309, U.P., India,
Email: deep.arora@jaipuria.ac.in
2
Assistant Professor, Jaipuria Institute of Management, A-32A, Sector-62, Noida - 201 309, U.P., India,
Email: shikha.bhatia@jaipuria.ac.in