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Introduction

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Indian Stock Market

Part of the book series: SpringerBriefs in Economics ((BRIEFSECONOMICS))

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Abstract

Theory of efficient market is one of most debated yet controversial theory of Neoclassical School of Finance. The efficient market hypothesis states that in an efficient market, current prices instantly and correctly reflects all the available and relevant information and such market does not provide consistent abnormal returns. Despite a voluminous research, there is no consensus among economists whether financial markets are efficient. This chapter briefly provides theoretical foundations and empirical perspectives of theory of efficient market. Further, the financial sector reforms and changes in market microstructure and trading practices in India, emergence of Indian stock market in recent past, motivation, and need to relook the issue of efficient market in changed environment are explained. Lastly, present chapter presents the issues such as episodic nonlinear dependence, structural breaks and long memory in stock returns addressed in the present volume, nature of data, and scope of the study.

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Notes

  1. 1.

    The work of Bachelier (1900) did not come to light for a long time. Its English translation appeared in Cootner (1964). Osborne (1959) reports similar results.

  2. 2.

    According to Professor Bandi Kamaiah, theoretically there is no difference between weak and semi-strong forms of efficiency. For empirical testing, it is convenient to test weak and semi-strong separately. However, the conventional classification is followed here.

  3. 3.

    No-trade theorem argument is that even one knows what other does not know, also then it is not possible to make profit from such information. A brilliant description of No trade argument and efficient market can be found in Ross (2005).

  4. 4.

    In empirical testing of EMH, transaction costs are ignored. Now, with screen-based trading, transaction costs are considerably minimal.

  5. 5.

    Malkiel (1973) put it that ‘a blindfolded chimpanzee throwing darts at the Wall Street could select a portfolio that would do as well as the experts’.

  6. 6.

    A collection of the seminal works on theory of efficient market and its anomalies, and random walk hypothesis can be found in Lo (1997).

  7. 7.

    For e.g., see Krueger (1974), Joshi and Little (1994), Bhagwati (1982), Bhagwati and Desai (1970), Bhagvati and Srinivasan (1993), Lal (1993), Shroff (1993), Srinivasan (2001).

  8. 8.

    World Bank (1989) reports recommended structural reforms in financial sector and prescribed opening of sector for global capital to attain desired macro-economic stability and efficient resource use.

  9. 9.

    The reforms were initiated in 1991 under the compulsion of crisis rather than the realization of their significance. Hence these reforms are sometime termed as crisis driven reforms. For e.g., see Basu (1993).

  10. 10.

    For detailed information on various regulatory measures initiated by the SEBI, see annual reports of the SEBI.

  11. 11.

    DMA allows brokers to offer clients direct access to the exchange trading system through the broker’s infrastructure without manual intervention by the broker. This facility is available from April, 2008. See, NSE (2008, 2009).

  12. 12.

    Patnaik (1994b) presents a thoughtful insights and an insightful critique of India’s economic reforms.

  13. 13.

    NSE (2012) in its review of capital market provided a detailed discussion on recent developments and achievements of Indian equity market.

  14. 14.

    Taylor (2005) suggests that time interval between prices should be sufficient enough so that trade takes place in most intervals. Selecting daily values will be both appropriate and convenient.

  15. 15.

    Taylor (2005) opines that at least 4 years of daily values (more than 1,000) observation are required to obtain interesting results.

  16. 16.

    Appendix presents a brief description of the selected indices.

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Authors and Affiliations

  1. Economics, Department of Humanities and Social Science, IIT Kharagpur, Kharagpur, West Bengal, 721302, India

    Gourishankar S. Hiremath

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Hiremath, G.S. (2014). Introduction. In: Indian Stock Market. SpringerBriefs in Economics. Springer, New Delhi. https://doi.org/10.1007/978-81-322-1590-5_1

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