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A Systematic Study to Test the Efficient Market Hypothesis on BSE Listed Companies before Recession

Stock Market is unpredictable phenomenon and is hard to digest that it provides complete information about the listed stocks and market. The investments made by the investors and their returns are directly based on the up and down movements of the indices of stock exchanges in which the buying securities are listed. Most individuals engage in transaction buying and selling securities (stocks in particular), do so under the general assumption that the securities they are buying are worth more than the price that they are paying, while securities that they are selling are worth less than the selling price. But if markets are efficient and current prices fully reflect all information, then buying and selling securities is an attempt to outperform the market and will effectively be a game of chance rather than skill. The Efficient Market Hypothesis states that at any given time, security prices fully reflect all available information basing on various factors like company disclosures, company announcements, dividend policy of company, company fundamentals and change in government policy etc and these factors are also used as a tool to predict the future prices of stocks. Thus this study is to test the efficient market hypothesis on Bombay stock exchange during the pre recession period from 4 th Jan to 24 th Dec. 2008. In this study by implementing modern tool like “Run test and Autocorrelation” on BSE Sensex we will find out whether there is any relationship between the future prices of stock and their past performance through efficient market hypothesis. In last finding, conclusion and recommendation will be given. The finding of study will be useful to investors but it may differ from other study depending upon selected time period.