Variance ratios, structural breaks and nonrandom walk behaviour in the Indian stock returns

The paper investigates the issue of behaviour of stock returns in India. A non-parametric variance ratio test is used to examine the issue. Largely the results indicate non-random walk behaviour of Indian stock market. However, the sub-sample analysis of stock returns based on structural breaks show an increasing mean-reverting tendency after occurrence of structural breaks in the series. The events associated with break dates mainly are volatile exchange rate movements, oil shocks, internet bubble burst, sub-prime crisis, global economic meltdown and political uncertainties. Rejection of random walk is relatively stronger for smaller and medium indices than larger indices implying that market capitalization and liquidity play a greater role in improving efficiency of the market.