The random walk hypothesis pertaining to stock prices in India : a firm level analysis
Part of : MIBES Transactions : international journal ; Vol.3, No.1, 2009, pages 64-79
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Pages:
64-79
Author:
Abstract:
Modelling various financial variables involving time series data have received greater attention among economists and policy makers across economies. Random walk model is one among such model which has widely applied pertaining to stock prices and other time series data. However, this paper applies a different dimension of the model for stock prices using firm level data in the Indian context. Daily adjusted closing prices of A rated 33 companies, spread across, different categories of Bombay Stock Exchange (BSE) Mumbai, have been used to tests whether stock prices follow random walk process or not. Perhaps this is a unique piece of study of RWM which applies to firm level data. Applying various unit root tests such Dickey and Fuller, Ng-Perron etc. The study finds sufficient evidence that stock prices of various firms supports random walk hypothesis during the study period and conclude that, it is practically difficult to predict the stock price based on past observations. Stock price do follow random walk process mainly due to firm specific factors apart from economic and financial factors.
Subject (LC):
Keywords:
random walk hypothesis, stock price, unit root, firm level
Notes:
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