Empirical Evidence on Indian Stock Market Efficiency in Context of the Global Financial Crisis

Abstract

The study of stock market efficiency has been the objective of many researches across the globe since the last few decades. But the evidence is mixed on whether the stock market is efficient. While some studies conclude that the stock markets are efficient, other studies cast doubt on this conclusion. Stock market efficiency suggests that stock prices incorporate all relevant information when that information is readily available and widely disseminated, which implies that there is no systematic way to exploit trading opportunities and acquire excess profits. In other words, stock prices follow a random walk which holds that stock price changes are independent of one another. This paper is an attempt to provide some empirical evidence on the efficiency of Indian stock market in the context of recent global financial crisis. The study by employing the unit root tests on the sample of daily stock returns, presents the evidence of weak form market inefficiency in India. The study further examines the mean reversion implication of market inefficiency and suggests the existence of mean reversion illusion in India.