Testing Random Walk and Market Efficiency: A Cross-Stock Market Analysis

Date01 November 2018
Published date01 November 2018
Subject MatterArticles
Testing Random Walk
and Market Efficiency:
A Cross-Stock Market
Subrata Roy1
The study seeks to examine the Random Walk Hypothesis (RWH) and market
efficiency of the selected stock market indices particularly London Stock Exchange,
EuroStoxx 50, Nihon Keizai Shimbum (NIKKI), Shanghai Composite Stock Exchang e
and Bombay Stock Exchange. Daily closing index value is considered and trans-
formed into logarithm return. Various tests like serial independence test, unit root
test and multiple variance tests are applied. It is observed that the null hypotheses
(presence of random walks) of the daily returns of the indices are rejected and
in few cases are accepted based on various test statistics.
JEL Classification: G00, G01, G02
RWH, ADF, PP, VR, Runs Test
Many researchers conduct extensive studies about randomness of the stock prices.
There are two groups of studies, out of which one theoretically and empirically
supports the random walk hypothesis (RWH) (see Fama, 1965b, 1995) in the context
of efficient market hypothesis and the second is uncertainty regarding RWH
(Lo & Mackinlay, 1988). A market is said to be efficient when the stock prices
fully reflect all the available information where making of abnormal profit is
impossible. Any fresh information that helps to alter the prospect of the organizations ’
Foreign Trade Review
53(4) 225–238
©2018 Indian Institute of
Foreign Trade
SAGE Publications
DOI: 10.1177/0015732518797183
1 Department of Commerce, Rabindra Mahavidyalaya, Champadanga, West Bengal, India.
Corresponding author:
Subrata Roy, Department of Commerce, Rabindra Mahavidyalaya, Champadanga, Hooghly, West Bengal
712401, India.
E-mail: subrata1_roy@yahoo.com

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT