Abstract
This study examines the concept of variable efficiency (time-varying levels of efficiency) and time-varying return predictability in the Indian stock market , which are the implications of Adaptive Markets Hypothesis (AMH ). We apply linear tests to examine the time-varying dependence in two different indices of the Bombay Stock Exchange (BSE) in India, i.e. Sensex (benchmark) and BSE 500 (broad-based) Index. We utilize rolling window approach to analyse the impact of observation period, time horizon and data frequency, on the weak form level of market efficiency . The results suggest patterns that are consistent with the implications of Adaptive Markets Hypothesis for both the indices. The broad-based BSE 500 Index has been found to be more inefficient than the benchmark Sensex.
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The contents of this chapter are from a paper written by Raj S. Dhankar and Devesh Shankar, Faculty of Management Studies, University of Delhi, Delhi-110007 titled, Adavitive Market Hypothesis in India: Evidence of Time-Varying Linear Dependence. The author acknowledges the inputs received by Devesh Shankar, without which this chapter would not have been completed.
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Notes
- 1.
Although some reclassifications were made in the levels of informational efficiency: Tests of return predictability, Event Studies and Tests for private information respectively (Fama, 1991); the initial categorizations are more widely recognized.
- 2.
For a description of various market anomalies please refer to Table 8.7 in the Appendix section.
- 3.
Each distinct group of market participant represents a group of investors that behave in a common manner. For example, pension funds, hedge funds, market makers and retail investors (Lo ,2004).
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Dhankar, R.S. (2019). Market Efficiency and Stock Market. In: Risk-Return Relationship and Portfolio Management. India Studies in Business and Economics. Springer, New Delhi. https://doi.org/10.1007/978-81-322-3950-5_8
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