Testing of Market Efficiency in India a Study of Random Walk Hypothesis of Indian Stock Market (BSE)

As long as financial markets are concerned, for many years’ economists, statisticians and financial analyst have been interested in developing and testing models of stock price behavior and their forecast. This study examines whether the Indian stock market is efficient if the stock returns follow a random walk. The study employs daily closing prices of SENSEX (Sensitivity Index of BSE of India) for a time period of 01 July 1997- 03 Dec 2014. The existence of random walk for BSE Index has been examined through autocorrelation, the Box- Jung test statistics and the run test and finds that the Indian stock market was not efficient in the weak form during the testing period. The results suggest that the stock prices in India do not reflect all the information in the past stock prices and abnormal returns can be achieved by investors exploiting the market inefficiency