South Asian Journal of Management

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Informational Efficiency of National Stock Exchange (NSE), India:A Comparison with Seven Selected Markets


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1 Vinod Gupta School of Management (VGSOM), Indian Institute of Technology Kharagpur, Kharagpur-721302, West Bengal, India
     

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The efficiency of a stock market can be illustrated either by the condition such as investment and behavioral patterns, and bubbles, or assessed by exclusive measures, such as the Hurst exponent. The Hurst exponent methodology brings about a measure for long-term memory and probability of the future values based on past information, without making assumptions about stationarity. In the current study, the Hurst exponent has been estimated for past 10 years’ daily values of eight stock indices and the corresponding financial sector index series. The markets chosen include those from India, Brazil, China, Hong Kong, Japan, Singapore, United Kingdom (UK) and the United States of America (USA). These financial sector indices were considered for this study as they had the highest weight percentage and number of constituents in all the exchanges. Empirical analyses showed that the Hurst exponent values of the series varied for different stock exchanges and corresponding financial sector index, but were in the range of 0.5, confirming the market to be efficient. A comparison of India’s National Stock Exchange (NSE) with selected markets of the seven other countries revealed that India’s NSE had one of the efficient indices with regard to its peers. It was also found that most of the indices, though locally persistent, went through phases involving herding behaviors of market participants.

Keywords

De-Trended Fluctuation Analysis (DFA), Fractal Dimension, Hurst Exponent, National Stock Exchange (NSE), Range to Standard Deviation Ratio.
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  • Informational Efficiency of National Stock Exchange (NSE), India:A Comparison with Seven Selected Markets

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Authors

Manoj Kumar Choudhury
Vinod Gupta School of Management (VGSOM), Indian Institute of Technology Kharagpur, Kharagpur-721302, West Bengal, India
Prabina Rajib
Vinod Gupta School of Management (VGSOM), Indian Institute of Technology Kharagpur, Kharagpur-721302, West Bengal, India

Abstract


The efficiency of a stock market can be illustrated either by the condition such as investment and behavioral patterns, and bubbles, or assessed by exclusive measures, such as the Hurst exponent. The Hurst exponent methodology brings about a measure for long-term memory and probability of the future values based on past information, without making assumptions about stationarity. In the current study, the Hurst exponent has been estimated for past 10 years’ daily values of eight stock indices and the corresponding financial sector index series. The markets chosen include those from India, Brazil, China, Hong Kong, Japan, Singapore, United Kingdom (UK) and the United States of America (USA). These financial sector indices were considered for this study as they had the highest weight percentage and number of constituents in all the exchanges. Empirical analyses showed that the Hurst exponent values of the series varied for different stock exchanges and corresponding financial sector index, but were in the range of 0.5, confirming the market to be efficient. A comparison of India’s National Stock Exchange (NSE) with selected markets of the seven other countries revealed that India’s NSE had one of the efficient indices with regard to its peers. It was also found that most of the indices, though locally persistent, went through phases involving herding behaviors of market participants.

Keywords


De-Trended Fluctuation Analysis (DFA), Fractal Dimension, Hurst Exponent, National Stock Exchange (NSE), Range to Standard Deviation Ratio.

References