The present study intends to examine the nature of the Indian stock market by examining the randomness of daily market returns and the influence of COVID-19. To achieve this purpose, the daily closing prices of BSE Sensex and Nifty Fifty have been taken for the period between July 2019 to June 2020, and the same is divided in two parts, one before COVID-19 (Period I July - Dec. 2019) and another during COVID-19 (Period II Jan – June 2020). The JB test, Kolmogorov-Smirnov test, run test, unit root test, and autocorrelation test have been used to test the time series data. The results of the study highlighted that data is not normally distributed, and it is observed to be more volatile in Period II. The study concludes that Indian stock markets do exhibit a weak form of market efficiency and generally do not follow random walk in both periods. The study implies that the recent pandemic did not impact the behavior of Indian stock markets to a great extent. The results of the study might be useful for investors and corporate executives in framing business policies.
Top1. Introduction
The world is seeing an incorrigible loss as a result of the new coronavirus epidemic, which has shaken the global economic and social landscape. The pandemic's repercussions are catastrophic, resulting in millions of people falling into poverty, firms going out of business, job losses for the workforce, and a paradigm shift in society. Following the outbreak of Covid-19, the globe experienced a devastating economic crisis, maybe the worst since Great Despair (Gopinath, 2020). The stock markets, on the other hand, appear to be unconcerned by all of this. There is no correlation among the harshness of the pandemic as shown by the count of Covid-19 cases and demises and stock market reactions, according to global stock price patterns. As a result, it's still a mystery how much of the stock market's behaviour can be explained by economic fundamentals.
A crucial market-wide circuit breaker that was considered to avoid crashing in the share market, the floor was activated four times in a row during March month of 2020. Stockholders eventually grieved substantial losses as a result of falling stock prices. Worldwide anxiety of the crisis and its effects on economy had spread multifold than expected. The present health crisis included various socioeconomic impacts that are comparable to those that occurred during the 2008 financial and economic crisis. Krugman (2020) adsvises us to recall three rules: “First and foremost, the stock market does not represent the economy. Second, the stock market isn't the same thing as the economy. Third, the stock market is not a substitute for the economy (...) in his NY times article. The link between market performance and actual economic development, which is mostly driven by the oscillation between greed and fear, has always been shaky at best.” Krugman ignores any connection among the share market and the economy, raising doubts about the efficacy of the Efficient Market Hypothesis (EMH). Similar insights have been made by Burton Malkiel and Robert Shiller while studying the seemingly illogical behaviour of stock prices during the Covid-19 period (Malkiel and Shiller, 2020).
These discussions allow us to acquire fresh understandings on the share market's behaviour in the situation of Covid-19 issue. Despite the fact that, Covid-19 shock was worldwide, its impact was not uniform across countries. This paper examines how Indian stock markets have performed after Covid-19 has surfaced. The phrase “stock market efficiency” is considered to describe the connection between information available in the market and prices of the shares. Eugene Fama coined the term “market efficiency” in 1970, defining it as “the condition in which the securities prices in that market react promptly to the introduction of fresh information”. Current security prices represent all of the information necessary for stock market price forecast, as per EMH. The market's efficiency is determined by the amount and type of information absorbed, and the time it takes to absorb it.
The efficient market hypothesis, as per Fama (1970), may be divided in three types; i.e. weak form, semi-strong form, and strong form. He claims that present prices completely represent all of information controlled in past prices under the 'weak form efficient market' concept. The present prices of equities, in semi-strong form, replicate all informative content of past prices as well as all widely accessible information. The values of shares in the strong form' completely represent all accessible information, both public and private. The strong form asserts that all information is worthless to the investor or analyst, not just publicly available information.
The stock markets throughout the world have experienced massive losses as a result of the epidemic, and the Indian stock market was no exception. With the emergence of COVID-19, which wreaked havoc on financial markets throughout the world, the Indian stock exchanges have been rocked. When stock markets are influenced by epidemics, several investing options may be made after determining the stock market's efficiency.