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Testing the adaptive market hypothesis and its determinants for the Indian stock markets

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  • Hiremath, Gourishankar S.
  • Narayan, Seema

Abstract

We examine the adaptive market hypothesis using the Generalized Hurst exponent, derived using fixed and rolling windows. We find that the Indian stock market is moving towards efficiency. We also ascertain a positive and significant link between the Indian market's efficiency gap and financial crises, other international shocks and major domestic policy and crisis-related events. Net foreign institutional investment increases the efficiency gap, although the impact is less for international events. Foreign institutional investment and market microstructure factors do not influence efficiency in an emerging market. This evidence would benefit a stock market liberalization policy review.

Suggested Citation

  • Hiremath, Gourishankar S. & Narayan, Seema, 2016. "Testing the adaptive market hypothesis and its determinants for the Indian stock markets," Finance Research Letters, Elsevier, vol. 19(C), pages 173-180.
    • Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:173-180
    DOI: 10.1016/j.frl.2016.07.009
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    More about this item

    Keywords

    Time-varying efficiency; Adaptive market hypothesis; Financial liberalization; Economic crisis; Market microstructure; International capital flows; India;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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