Published Online:July 2025
Product Name:The IUP Journal of Accounting Research & Audit Practices
Product Type:Article
Product Code:IJARAP050725
DOI:10.71329/IUPJARAP/2025.24.3.86-100
Author Name:Somesh Jadhwani, Shreya Jain, Siddhant Mehta, Anushka Rajurkar and Abhay Kumar
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:86-100
The paper evaluates the weak-form market efficiency of the Indian stock market through comprehensive analysis of daily returns for the top 500 publicly-traded companies by market capitalization (Nifty 500) from January 2023 to January 2025. Unlike previous research primarily focused on market indices, the investigation examines individual securities representing approximately 92% of India’s free-float market capitalization. We employed multiple statistical methodologies to test the random walk hypothesis, including Runs Test, Autocorrelation Test, Augmented Dickey-Fuller (ADF) Test and Kolmogorov- Smirnov (K-S) Test, with the nonparametric Runs Test serving as the primary evaluation criterion. The results reveal that none of the analyzed securities exhibit weak-form efficiency at 5% significance level according to the Runs Test. This conclusion is further supported by the K-S Test, which rejects the efficiency hypothesis for 74% of securities, while autocorrelation analysis indicates weak-form efficiency in only 59% of the sample. Although the first difference of the ADF test suggests potential market efficiency, the preponderance of evidence across the methodological framework leads to the robust conclusion that the Indian stock market does not conform to the weak-form efficient market hypothesis (EMH). Further analysis demonstrates that inefficiencies are more pronounced in smaller capitalization stocks, suggesting a size effect in market efficiency characteristics.
Efficient market hypothesis (EMH) forms a key element of modern finance theory. This hypothesis asserts that asset prices comprehensively reflect all available information, thereby rendering it impracticable to consistently achieve returns exceeding average market performance on a risk-adjusted basis.