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

Hiremath, Gourishankar S. and Kumari, Jyoti, Stock Returns Predictability and the Adaptive Market Hypothesis in Emerging Markets: Evidence from India (2014)

14 Pages Posted: 31 Dec 2014

See all articles by Gourishankar S. Hiremath

Gourishankar S. Hiremath

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences

Jyoti Kumari

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences

Date Written: 2014

Abstract

This study addresses the question of whether the adaptive market hypothesis provides a better description of the behaviour of emerging stock market like India. 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. In contrast, the results from nonlinear tests reveal a strong evidence of nonlinearity in returns throughout the sample period with a sign of tapering magnitude of nonlinear dependence in the recent period. The findings suggest that Indian stock market is moving towards efficiency. The results provide additional insights on association between financial crises, foreign portfolio investments and inefficiency.

Keywords: Adaptive market hypothesis; Market efficiency; Random walk; Autocorrelation; Nonlinearity; Predictability; Financial crisis; Evolving efficiency; Emerging markets

JEL Classification: G14; G12; C12

Suggested Citation

Hiremath, Gourishankar S. and Kumari, Jyoti, Stock Returns Predictability and the Adaptive Market Hypothesis in Emerging Markets: Evidence from India (2014). Hiremath, Gourishankar S. and Kumari, Jyoti, Stock Returns Predictability and the Adaptive Market Hypothesis in Emerging Markets: Evidence from India (2014), Available at SSRN: https://ssrn.com/abstract=2492419

Gourishankar S. Hiremath (Contact Author)

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences ( email )

Kharagpur, West Bengal 721302
India

Jyoti Kumari

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences ( email )

Kharagpur, West Bengal 721302
India

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