Title: Case Study: Informational Efficiency of Indian and Chinese Stock Market
Abstract: AbstractThis paper discusses weak form efficiency of Indian and Chinese stock market. data belongs to two Indian stock market indices, SENSEX and NIFTY and two Chinese stock market indices, Shanghai composite index and Shenzhen composite index. time span of study is from July 2003 to June 2013 for all indices. We apply autocorrelation test, run test and GARCH family models to conduct efficiency test for these two emerging economies stock market indices. On basis of data analysis, we conclude that these two emerging stock markets are not weak form efficient. It means an investor can earn excess returns by observing past information about market because past affects future return over some time period. informational efficiency is hallmark of mature financial markets and it is suggested that efforts should be made to make these markets informational efficient.Keywords: Random walk, Efficient Market Hypothesis, Run test, Autocorrelation, NIFTY, SENSEX, GARCH, EGARCH.(ProQuest: ... denotes formulae omitted.)IntroductionConcept of EMH: efficient market hypothesis (EMH) is one of most important theories of finance. It is central to asset pricing theories as these theories are dependent on efficient market hypotheses. Its origin can be traced to work by Bachelier1 in his Ph. D. research which introduced randomness in stock prices. major impetus was achieved in 1953 when Maurice Kendall12 presented a paper before Royal Statistical Society, London discussing randomness of stock price time series. Then later on, in 1959, two more papers were published, one by Harry Roberts20 and another by Osborne18 where they showed randomness of stock prices.The economic sense to randomness in stock prices was introduced by Fama6 which stated that randomness in stock prices reflects informational efficiency of stock market. Later on Fama7 also classified efficiency in three forms: weak form, semi-strong form and strong form efficiency of stock market. This paper attempts to assess weak form efficiency of Indian and Chinese stock market by using market indices data of these two stock markets.Research Hypotheses: In order to attain objectives of study, following specific hypotheses are tested in study.1. There is no weak form efficiency in Indian stock market.2. There is no weak form efficiency in Chinese stock market.Review of LiteratureThe application of efficient market hypotheses principles is pervasive throughout theories of finance. genesis of EMH can be traced back to work by a French mathematician, Louis Bachelier1, whose Ph.D. dissertation titled The theory of speculation in 1900, provided some initial ideas to randomness of market prices, however he did not use term random walk. next significant contribution to theory came from Maurice Kendall12 in 1953. He examined behavior of weekly changes in 19 indices of British industrial share prices and in spot prices for cotton (New York) and Wheat (Chicago). On basis of serial correlation analysis, he stated that the series looks like a wandering one almost as if once a week demon of chance drew a random number from a symmetrical population of fixed dispersion and added it to current price to determine next week's price. In 1959, two more studies by Harry Roberts20 and Osborne18 corroborated these facts.Fama6 provided conceptual and economic framework of this behavior of randomness in stock prices and stated that in well informed market, prices reflect all information and any change that takes place in price is due to new information. author propounded efficient market hypothesis. Fama7 also provided a useful framework of EMH when he classified market efficiency in three forms, namely weak form, semi-strong form and strong form efficiency. …
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: article
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