The behavior of stock prices has been an important topic of discussion in the academic
circles for a long time. In this context, financial researchers have developed various theories
and models which have been tested empirically for different equity markets. Among them is
the Random Walk (RW) theory, one of the earliest theories proposed for stock price
behavior, which states that future stock prices cannot be predicted on the basis of past price movements.
Many research studies have been carried out by international economists
and professors. Some of them are: Kendel (1965), Dryden (1970), Solink (1973),
Malaikah (1990), Aybar (1992), Khiliji (1993, 1994), Uppal (1993), Ahmed (1995), and
Hussain (1997). There are also recent studies in this area.
The present study seeks to find out the problems in the prediction of future
share prices in the Indian context. The period chosen for this study is highly critical, in
the sense that financial crisis and economic meltdown due to subprime market are very
much present. This study analyzes the problems associated with RW theory.
The distribution is positively skewed and the values of the kurtosis are between 1 and
3. Therefore, the distribution curve takes the shape of mesokurtic. Figures 1 and 2 depict
the trends of share prices and indices. The trend is visible when the closing price of all
the selected shares and indices is plotted in a figure. The movement of indices and share
prices are downwards. It reflects the general trend of the market during the period of
financial crisis and economic meltdown across the world in 2008. With this kind of trend, one
is not able to predict the future trend of shares and indices. Also, how quickly the
Indian market can absorb information or cue from the world market cannot be ascertained
with these figures. Tables in Annexures 3 and 4 consist of the values of various statistical
test results of the selected shares of the NSE. |