Weak form of Market Efficiency of Indian Stock Market

1. Final Research Project
On
Stock Market Efficiency in India:
Evidence from NSE
Deepika Aggarwal
MBA 4th SEM
11061203911

2. FLOW OFTHE PRESENTATION
• Introduction
• Literature Review
• Objective and Hypothesis of the Study
• Research Methodology
• Data Analysis
• Findings
• Conclusion
• Biblography

3. INTRODUCTION
Efficient Markets Hypothesis:
• Markets are considered to be efficient if there is a free flow of
information and the market absorbs the information quickly. Market
efficiency signifies: how quickly and accurately does relevant known
information in immediately discounted by all the investors and reflected
in the security prices in the market. No single investor has an information
edge over the others as everyone knows all possible to know information
simultaneously. Moreover every investor interprets the information
similarly and behaves rationally.

4. Random WalkTheory
• As per this theory, changes in stock prices are independent of
each other. The prices of today are independent of past trends.
The price of each day is different it may be higher or lower than
the previous price or may be unchanged. The present price is
randomly determined and is influenced only by the information.
This theory has been empirically tested and the analysts have
also found an explanation for the efficiency of the markets.

5. The random walk theory is based on efficient
market hypothesis. EMH says that successive
absolute short run prices changes are
independent. The hypothesis is based on the
assumptions that all the securities markets are
efficient. To have efficient markets, it is essential
that both internal and external efficiency must be
there:-
Internal efficiency:
External efficiency:

6. OBJECTIVES OF THE STUDY
Primary Objectives:
• To validate the postulates of Weak Form of Efficiency of Indian Stock Market
with reference to stock returns movement with special reference to NSE S&P
CNX Nifty with the help of tools like SPSS 17.0 and EViews.
Secondary Objectives :
• To study and analyze different forms of efficiency in market.
• To study Random Walk Theory

7. HYPOTHESIS:
The study is based on the following hypothesis:
• H0: The S&P CNX Nifty Index stock returns do
not follow a random pattern.
• H1: The S&P CNX Nifty Index is not weak form
efficient.

8. RESEARCH METHODOLOGY
The research is descriptive in nature and attempts to study the
relevance of the Random Walk Theory with respect to S&P CNX
Nifty.
The Sample:
A Sample of 25 scripts belonging to the S&P CNX Nifty Index
have been selected out of a total of 50 scripts on which the Index
is based on the basis of their highest market capitalization from
their respective sectors. Scripts of different sectors have been
represented in the sample.

9. • The script’s monthly returns have been taken for the period of
seven year from 1st April, 2006 to 31st March, 2013. Secondary
data of monthly return of 25 scripts belongs to S&P CNX Nifty
Index been taken from the NSE website
Tools for Data Analysis:
• Run Test with the help of SPSS 17.0 Software
• Phillips–Perron Test with the help of EViews

10. FINDINGS
• The findings show that although the market is efficient it is a weak
form stage thereby showing that information dissemination is still
not immediate and insiders are still able to make profit from their
information .
• The result of this research is in tandem with the Sharma and
Kennedy (1977) who compared the behavior of stock indices of
Bombay, London and New York stock exchanges during 1963-73
using run test in the Indian context and the analysis confirmed the
weak form efficiency of all the three stock exchanges.

11. CONCLUSION
• The study has revealed that the S&P CNX Nifty is weak form efficient
thereby showing those investors will not benefit form technical analysis
based on past data for predicting future prices. However, insider
information is not finding itself reflected in the prices thereby implying
that investors having access to this information may be able to earn
abnormal profits..

12. THANK YOU