Testing Random Walk Hypothesis in Indian Stock Market - A Study of Selected Stocks Listed on BSE

Stock market efficiency is one of the most debatable issues in the economics literature around the world due to its importance in financial market and difficulties in measurement. Efficient Market Hypothesis (EMH) plays a crucial role in pricing and allocation of capital. No investor in an efficient market will be able to earn abnormal profits as there is no scope for 'under valuation' or 'over valuation' of prices of securities. In the past two decades, the areas of EMH have gained more importance, especially in the emerging markets like India. The movement of the stock market provides an insight to investors who buy and sell shares and securities with the aim of making profits. The results of the present study may be used by the institutions such as banks, stock exchange participants, non-financial institutions, foreign banks and insurance companies. The top thirty companies traded at the Bombay Stock Exchange have been considered for the study. Runs test was used for data analysis and interpretation. The result shows that the price movements in share prices of BSE are random in behavior implying that one cannot use the historical prices of shares for predicting their future prices. It was proved that the weak form of market efficiency or the random walk theory is applicable in the BSE.