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Stock Returns Predictability and the Adaptive Market Hypothesis: Evidence from India

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  • Hiremath, Gourishankar S
  • Kumari, Jyoti

Abstract

The present paper evaluates whether the adaptive market hypothesis provides a better description of the behavior of Indian stock market using daily values of Sensex and Nifty, the two major indices of India from January 1991 to April 2013. We employed linear and nonlinear methods to evaluate the hypothesis empirically. The linear tests show a cyclical pattern in linear dependence suggesting that the Indian stock market switched between periods of efficiency and inefficiency. However, the results from nonlinear tests reveal a strong evidence of nonlinearity in returns throughout the sample period with a sign of the taping magnitude of nonlinear dependence in the recent period. The findings suggest that Indian stock market is still in the first stage of AMH and hence calls for an active portfolio management for excess returns.

Suggested Citation

  • Hiremath, Gourishankar S & Kumari, Jyoti, 2013. "Stock Returns Predictability and the Adaptive Market Hypothesis: Evidence from India," MPRA Paper 52581, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:52581
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    References listed on IDEAS

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    More about this item

    Keywords

    Adaptive market hypothesis; Market efficiency; Random walk; Autocorrelation; Nonlinearity; Predictability; behavioral finance;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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