Testing Random Walk Hypothesis : An Empirical Analysis of National Stock Exchange Indices

This paper investigates weak form of efficiency in Indian equity market. For this purpose, informational efficiency of National Stock Exchange of Indian's indices i.e. NIFTY, bank NIFTY and IT NIFTY is examined. The NSE indices returns under the study do not confirm to normal distribution. The index log returns are found to be nonstationery at levels, whereas first differences are found stationery. The result of autocorrelation test finds evidence of statistical dependence in the returns generating process. In order to check the randomness in returns, ARIMA model is applied. The results of ARIMA model for all the three indices of NSE are found significant which implies that the returns are predictable and do not follow the random walk except in case of bank NIFTY, whose autoregression of first order (AR1) was found to be insignificant, but the serial correlation test of bank NIFTY is found significant