Sasidharan, Anand (2009): Structural Changes in India's Stock Markets' Efficiency.
Download (406kB) | Preview
This paper finds evidence that the Indian stock market has become weak-form efficient, off-late. We proceed by, first, locating structural breaks in the index using Bai-Perron's method for endogenous multiple structural changes. Four structural breaks are identified for the period 1991 to 2008 for the S&P CNX Nifty series -- December 1994, July 1999, June 2003 and January 2006. For this period the behaviour of returns approximates a Stable Paretian distribution. This would mean that the market risk will be beyond that can be predicted by measures build on the assumption of normality of returns. The property of infinite population variance of a stable paretian distribution makes variance based estimators redundant. Therefore, using non-parametric methods the paper tests the efficiency of the market across the periods of structural breaks. It is found that the markets have become weak-form efficient only since the second half of 2003, corresponding to the period of the third structural break.
|Item Type:||MPRA Paper|
|Original Title:||Structural Changes in India's Stock Markets' Efficiency|
|Keywords:||Efficient Markets Hypothesis; Indian Stock Market; Structural Break; Bai-Perron; Paretian Distribution; Runs test;|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading
?? C16 ??
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General
|Depositing User:||Anand Sasidharan|
|Date Deposited:||21. Dec 2009 08:56|
|Last Modified:||14. Feb 2013 06:46|
Agrawal, G. (2007): “Monetary Policy Announcements and Stock Price Behavior: Empirical Evidence from CNX Nifty,” Decision, 34(2), 133.
Ahmad, K. M., S. Ashraf, and S. Ahmed (2006): “Testing weak form efficiency for Indian stock markets,” Economic and Political Weekly, pp. 49–56.
Bachelier, L. J. B. A. (1900): “Theorie de la speculation,” Paris: Gauthier-Villar, Reprinted in Paul H. Cootner (ed.) ‘The Random Character of Stock Market Prices’. Cambridge: M.I.T. Press, 1964.
Bai, J., and P. Perron (1998): “Estimating and Testing Linear Models with Multiple Structural Changes,” Econometrica, 66(1), 47–78.
Bailey, R. E. (2005): The Economics of Financial Markets. Cambridge.
Balakrishnan, P., and M. Parameswaran (2007): “Understanding Economic Growth in India: A Prerequisite,” Economic and Political Weekly, pp. 2915–2922.
Barman, R., and T. Madhusoodhan (1991): “Inefficiency and speculation in the Indian securities market,” Vikalpa, 16(4), 17–21.
Barua, S. (1981): “Short run price behaviour of securities: Some evidence of Indian capital market,” Vikalpa, 6(2), 93–100.
Campbell, J. Y., A. W. Lo, and A. C. MacKinlay (1997): The Econometrics of Financial Markets. Princeton University Press.
Choudhary, S. K. (1991): “Short-run price behaviour : New evidence on weak form of market efficiency,” Vikalpa, 16(4), 17–21.
Fama, E. F. (1965): “The Behavior of Stock-Market Prices,” The Journal of Business, 38(1), 34–105.
Fama, E. F. (1970): “Efficient Capital Markets: A Review of Theory and Empirical Work,” The Journal of Finance, 25(2), 383–417.
Fama, E. F. (1991): “Efficient Capital Markets: II,” The Journal of Finance, 46(5), 1575–1617.
Fama, E. F., and M. E. Blume (1966): “Filter Rules and Stock-Market Trading,” The Journal of Business, 39(1), 226–241.
Gupta, O. (1985): Behavior of share prices in India: A test of market efficiency. National Publishing House.
Krishnarao, N. (1988): “Market Efficiency: Indian Experience,” in Proceedings of National Seminar on Indian Securities Markets: Thrust and Challenges. University of Delhi.
Levin, R. I., and D. S. Rubin (1997): Statistics for Management. Printice Hall.
Mandelbrot, B. (1963): “The variation of certain speculative prices,” Journal of Business, XXXVI, 517–43.
Mandelbrot, B. and R. L. Hudson (2009). The (Mis)Behaviour of Markets: A Fractal view of risk, ruin and reward. Basic Books, U.S.
Nachane (2007): “Liberalisation of the capital account: Perils and possible safeguards,” Economic and Political Weekly.
Ray, H. (2007): “Macroeconomic variables and stock market behaviour: An Indian experience,” Arthavijnana, XLIX(3), 255–274.
Reddy, Y. S. (1998): Indian Capital Markets: Theories and Empirical Evidence chap. Efficiency of the Indian Stock Markets: An Empirical Analysis of Weak-Form EMH of the BSE, pp. 91–115. UTI Institute of Capital Markets and Quest Publications.
Samuelson, P. A. (1965): “Proof that properly anticipated prices fluctuate randomly,” Industrial Management Review, 6(2), 41–49.
Schleifer, A. (2000): Inefficient Markets. Oxford University Press.
Sharma, J., and R. Kennedy (1977): “A Comparative Analysis of Stock Price Behaviour on the Bombay, London and New York Exchanges,” Journal of Financial and Quantitative Analysis, 12, 319–414.
Shiller, R. J. (1981): “Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?,” American Economic Review, 71, 421–436.
Thomas, S., and A. Shah (2002): “Stock Market Response to Union Budget,” Economic and Political Weekly, pp. 455–458.
Wise, J. (1963): “Linear Estimators for Linear Regression Systems Having Infinite Variances,” Paper presented at the Berkeley-Stanford Mathematical Economics Seminar.
Yalawar, Y. B. (1988): “Bombay Stock Exchange: Rates of return and efficiency,” Indian Economic Journal, 35(4), 68–121.