Random Walks and Market Efficiency in Chinese and Indian Equity Markets
AbstractHypothesis of Market Efficiency is an important concept for the investors across the globe holding diversified portfolios. With the world economy getting more integrated day by day, more people are investing in global emerging markets. This means that it is pertinent to understand the efficiency of these markets. This paper tests for market efficiency by studying the impact of global financial crisis of 2008 and the recent Chinese crisis of 2015 on stock market efficiency in emerging stock markets of China and India. The data for last 20 years was collected from both Bombay Stock Exchange (BSE200) and the Shanghai Stock Exchange Composite Index and divided into four sub-periods, i.e. before financial crisis period (period-I), during recession (period-II), after recession and before Chinese Crisis (periodIII) and from the start of Chinese crisis till date (period- IV). Daily returns for the SSE and BSE were examined and tested for randomness using a combination of auto correlation tests, runs tests and unit root tests (Augmented Dickey-Fuller) for the entire sample period and the four sub-periods. The evidence from all these tests supports that both the Indian and Chinese stock markets do not exhibit weak form of market efficiency. They do not follow random walk overall and in the first three periods (1996 till the 2015) implying that recession did not impact the markets to a great extent, although the efficiency in percentage terms seems to be increasing after the global financial crisis of 2008.
F.Black and M.Scholes., The pricing of options and corporate liabilities, J.Polit.Econ.,81:637659, 1973.
Rosario N. Mantegna and H. Eugene Stanley, An Introduction to Econophysics Correlations and Complexity in Finance, Cambridge University Press, 1999.
E.F.Fama, Efficient capital markets: A review of theory and empirical work, Journal of Finance, 1970, vol. 25, issue 2, pp.383-417.
E.F.Fama, Chakravarti, Laha, and Roy, Handbook of Methods of Applied Statistics., Vol. I, John Wiley and Sons, pp. 392-394.
Maria Rosa Borges, Random Walk Tests for the Lisbon Stock Market., Applied Economics, Taylor & Francis (Routledge), 43(5),p.631, 2009.
A.K.Sharma and N.Seth,Recent Financial Crisis and Market Efficiency: An Empirical Analysis of Indian Stock Market, Indore Management Journal, 2 (4), pp.27-39, 2011.
Gupta and Basu, Weak Form Efficiency In Indian Stock Markets., International Business and Economics Research Journal, Vol.6(3),pp.57-64, 2007.
D.Schmidt , The FinancialCrisis and Its Impact on China., China Analysis Research Group on the Political Economy of China,Trier University, 2009.
Harper, Alan and Zhenhu Jin,Examining Market Efficiency In India: An Empirical Analysis Of The Random Walk Hypothesis ,Journal of Finance & Accountancy 10, , pp. 1-6, 2012.
BRICS,The BRICS Report: A Study of Brazil, Russia, India, China, and South Africa with Special Focus on Synergies and Complementarities. 1 Edition, Oxford University Press, 2012.
Graham Smith and Hyun-Jung Ryoo , Variance ratio tests of the random walk hypothesis for European emerging stock markets.,The European Journal of Finance 9, pp.290-300, (June 2003).
Clarke, Jonathan, Tomas Jandik, and Gershon Mandelker, The efficient markets hypothesis. Expert Financial Planning: Investment Strategies from Industry Leaders., New York: Wiley, Chapter 9, pp. 126-141.2001.
Dirk Schmidt, The Finacial Crisis and its impact on China, China Analysis 67, Trier University.
A. Abraham, F. Seyyed, and S. Alsakran, Testing the Random Behavior and Efficiency of the Gulf Stock Markets., The Financial Review, 37(3), pp.469-480, 2002.
E.F. Fama, Linyue Li, Thomas D.Willett and Nan Zhang, The Effects of the Global Financial Crisis on Chinas Financial Market and Macroeconomy Economics Research International, Vol. 2012, 2011, http://dx.doi.org/10.1155/2012/961694.
T. Grieb and M. Reyes, Random Walk Tests for Latin American Equity Indices and individual firms., Journal of Financial Research,22 (4), pp. 371-383, 1999.
Y.SHuang , Do Asian Stock MarketsFollowRandom Walks? - Evidence fromthe Variance Ratio Test., Applied Financial Economics,5(4), pp. 251-256, 1995.
A.Lo and A.MacKinlay, Stock Market Prices do not Follow Random Walks:Evidence from a Simple Specification Test., The Review of Financial Studies, 1(1), pp. 41-66, 1988.
S.Ma and M.Bernes, Are China’s Markets Really Weak-form Efficient?, Centre for International Economic Studies, Adelaide University,Discussion Paper 0119, 2001.
Andrew C. Worthington and Helen Higgs, Random walks and market efficiency in European equity markets ., Global Journal of Finance and Economics, 1(1), pp. 59-78, 2004.
Hin Yu Chung, Testing Weak-Form Efficiency of the Chinese Stock Market Department: Unpublished Master’s Thesis., Lappeenranta University of Technology, 2006.
Frederic S. Mishkin , Anatomy of a financial crisis., Journal of Evolutionary Economics, Vol. 2, pp.115-130. 1991.
Malafeev O.A., Nemnyugin S.A., Generalized dynamic model of a system moving in an external field with stochastic components, Theoretical and Mathematical Physics, 107(3), pp. 770-774, 1996.
Alferov G.V., Malafeyev O.A., The robot control strategy in a domain with dynamical obstacles., Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), 1093, pp. 211-217, 1996.
Drozdov, G.D., Malafeyev, O.A., Nemnyugin, S.A., Multicomponent dynamics of competitive single-sector economy development., Lecture Notes in Computer Science (including subseries Lecture Notes in Articial Intelligence and Lecture Notes in Bioinformatics) 1093, p. 211-217, 19962015 International Conference on Stability and Control Processes?in Memory of V.I. Zubov, SCP 2015 -Proceedings 7342188, p. 457-459, 2015.
Malafeev O.A., Stationary strategies in differential games., USSR Computational Mathematics and Mathematical Physics, 17(1),pp. 37-46, 1977.
Malafeev O.A., Equilibrium situations in dynamic games, Cybernetics 10(3), pp. 504-513, 1974.
Mikhail Moklyachuk, Maria Sidei,Extrapolation Problem for Stationary Sequences with Missing Observations,SOIC, http://dx.doi.org/10.19139/soic.v5i3.284.
Promila Kumar, Jyoti Dagar, Bharti Sharma, Characterization of Generalized Invexity in Multiobjective Fractional Variational Problem, SOIC, http://dx.doi.org/10.19139/soic.v4i4.208.
Willn lvarez,Victor John Griffin, Estimation Procedure for Reduced Rank Regression,PLSSVD,SOIC,
O.A.,Mikhail Moklyachuk, Maksym Luz,Filtering Problem for Functionals of Stationary Sequences,SOIC, http://dx.doi.org/10.19139/soic.v4i1.172..
Vinayak K Gedam, Suresh B Pathare, Estimation Approaches of Mean Response Time for a Two Stage Open Queueing Network Model, SOIC, http://dx.doi.org/10.19139/soic.v3i3.79.
V.S. Vaidyanathan,R.Vani Lakshmi,Parameter Estimation in Multivariate Gamma Distribution,SOIC,
X.Grigorieva, O.Malafeev, A competitive many-period postman problem with varying parameters, Applied Mathematical Sciences, 8(145148), pp. 7249-7258, 2014.
E.G.Neverova, O.A.Malafeyev, G.V.Alferov, T.E. Smirnova, Model of interaction between anticorruption authorities and corruption groups, SCP 2015 - Proceedings, pp. 488-490, 2015.
O.A.Malafeyev, S.A.Nemnyugin, G.A.Ivaniukovich, Stochastic models of social-economic dynamics, SCP 2015 - Proceedings, pp.483-485, 2015.
Y.A.Pichugin, O.A.Malafeyev, Statistical estimation of corruption indicators in the firm, Applied Mathematical Sciences, 10(41-44),pp. 2065-2073, 2016.
O.A.Malafeev, The existence of situations of -equilibrium in dynamic games with dependent movements, USSR Computational Mathematics and Mathematical Physics, 14(1), pp. 88-99, 1974.
A.I.Kirjanen, O.A.Malafeyev, N.D.Redinskikh, Developing industries in cooperative interaction: Equilibrium and stability in processes with lag, Statistics, Optimization and Information Computing, 5(4), pp. 341-347, 2017.
O.A.Malafeyev, N.D.Redinskikh,Stochastic analysis of the dynamics of corrupt hybrid networks,International Conference ”Stability and Oscillations of Nonlinear Control Systems”(Pyatnitskiy’s Conference), 2016
O.A.Malafeyev, V.N.Kolokoltsov, Corruption and botnet defense: a mean field game approach, International Journal of Game Theory, 2018, 47(3), p. 977-999
O.A.Malafeyev, N.D.Redinskikh, S.A.Nemnyugin, I.D.Kolesin, I.V.Zaitseva, The optimization problem of preventive equipment repair planning, AIP Conference Proceedings 1978,100013, 2018
Y.A.Pichugin, O.A.Malafeyev, D.Rylow, I.Zaitseva, A statistical method for corrupt agents detection, AIP Conference Proceedings 1978,100014, 2018
O.A.Malafeyev, D.Rylow, I.Zaitseva, A.Ermakova, D.Shlaev, Multistage voting model with alternative elimination, AIP Conference Proceedings 1978,100012, 2018
I.Zaitseva, O.Malafeyev, I.Kolesin, A.Ermakova, D.Shlaev, Modeling of the labour force redistribution in investment projects with account of their delay, IEEE International Conference on Power, Control, Signals and Instrumentation Engineering, ICPCSI 2017,p. 68-70
O.A.Malafeyev, N.D.Redinskikh, Compromise solution in the problem of change state control for the material body exposed to the external medium, AIP Conference Proceedings 1959,080017, 2018
O.Malafeyev, A.Awasthi, I.Zaitseva, D.Rezenkov, S.Bogdanova, A dynamic model of functioning of a bank, AIP Conference Proceedings 1952,020042, 2018
O.Malafeyev, K.Farvazov, O.Zenovich, (...), K.Kostyukov, T.Svechinskaya,Geopolitical model of investment power station construction project implementation, AIP Conference Proceedings 1952,020066, 2018
I.Zaitseva, O.Malafeyev, S.Strekopytov, A.Ermakova, D.Shlaev, Game-theoretical model of labour force training, Journal of Theoretical and Applied Information Technology, 2018,96(4),p.978-983
I.Zaitseva, O.Malafeyev, S.Strekopytov, G.Bondarenko, D.Lovyannikov, Mathematic model of regional economy development by the final result of labor resources, AIP Conference Proceedings 1952,020011, 2018
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).