Empirical Evidence of Weak Form Stock Market Efficiency

Empirical Evidences on Weak Form Stock Market Efficiency: The Indian Exprience
Ramesh Chander Kiran Mehta Renuka Sharma
Weak form efficiency hypothesis (EMH) stipulates that asset prices fully reflect information contained in past stock prices. The present study documents extensive evidence on price behavior in the Indian stock markets. One of the striking features of the results is that runs analysis too exuberate weak form efficiency further and the instances of return drift noted earlier have disappeared. On the whole, the results signify that trading strategies based on historic prices cannot be relied for abnormal gains consistently, except when these coincide with underlying drifts in the stock price movements. Key Words: Indian Stock Markets, Price, Weak Form Efficiency

Introduction Market efficiency is very contextual for investors under varied assumptions. It is extremely unlikely that all markets are efficient for all investors, but it is equally possible that a particular market (say, BSE) is efficient with respect to some investors under certain assumptions of differential tax rates and transaction costs. Market efficiency is also linked with similar assumptions about the spread and availability of information. Fama (1965) noted that markets could be efficient at three levels based on what information was reflected in prices. Under weak form efficiency, current stock prices reflect information contained in past prices, suggesting that charts and technical analyses based on past prices alone would not be enough to generate excess returns. Under semi-strong form efficiency, current prices are expected to reflect information contained not only in past prices, but also all public information including financial statements and news reports, and no approach based on using this information would be useful in finding undervalued stocks. Under strong form efficiency, current stock price is supposed to reflect all information, public as well as private, and

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