TESTING RANDOM WALK HYPOTHESIS OF INDIAN STOCK MARKET RETURNS: EVIDENCE FROM THE NATIONAL STOCK EXCHANGE (NSE)

Abstract

The behaviour of stock market returns is a central issue to the theory and practice of asset pricing, asset allocation, and risk management. The supporters of the efficient market hypothesis (EMH) claim that stock price indices are basically random and as such any speculation based on past information is fruitless. This paper investigates the Random Walk (RW) behavior of stock market returns of India. The na�ve random walk model was estimated using Ordinary Least Squares (OLS) method over the period 1st January, 2008 to 31st December, 2009. The data are obtained from the National Stock Exchange (NSE) website, Mumbai. The study result reveals that the return series is insignificantly different from zero, which is consistent with the random walk hypothesis. It can be, therefore, the present study suggests that the Indian stock market is found to be efficient and supports the random walk behaviour.