I.T.S-Management &I.T.

Institute Mohan Nagar, Ghaziabad

PGDM-III Trimester (Batch 2010-12)

OUTLINE FOR PROJECT WRITING Subject: Production & Operations Management Faculty: Prof. Manju Lamba

Last date for submission of project: 22th

March, 2011 (Tuesday)

Till 5:30 pm

Note:
* Students are asked to get their topic (along with company name) approved latest by Tuesday, 1st March, 2011 till 4:30 pm * The project report will followed by respective group presentations in the class

A Project Report On

Topic: Market Efficiency of Indian Stock Market

Submitted In Partial Fulfillment of the Requirement for the Award Of POST GRADUATE DIPLOMA IN MANAGEMENT Batch 2010-2012

Submitted by: Richa Sharma: PGDM (2010-2012) Roll no:2009123

Under the Guidance of Prof. Manju lamba Faculty (Management) ( ITS GHAZIABAD)

I.T.S- MANAGEMENT & IT INSTITUTE An ISO 9001:2008 Certified Institute and NBA Accredited (Approved by AICTE) G.T Road, Mohan Nagar, Ghaziabad-201007 (U.P) Phone: +91 120-4174900 Fax: 0120- 4174913 Website: www.itsgzb.ac.in

CERTIFICATE

This is to certify that the Dissertation Report titled Market efficiency of Indian Stock market submitted by Richa Sharma student of PGDM (2010-12) for the partial fulfillment of the requirement of the POST GRADUATE DIPLOMA IN MANAGEMENT embodies the bonafied work done by him under my supervision. I also declare that this dissertation is a result of his effort and no part of this research has been published earlier or been submitted as a project by him for any degree or diploma for any institute or university.

Date:

Signature of the mentor

ACKNOWLEDGEMENT

There are number of important people I want to thank, without their support, guidance, encouragement and help, this work would not have been possible. I want to thank Prof. Manju Lamba Faculty (Management), who has been my advisor and mentor throughout my studies. Without her criticism, continual support, effective teaching, constant challenge and encouragement I would not be able to give my best efforts, I would not have learned what I needed to nor been prepared to complete this project and future work.

Richa Sharma .

Table of Content
Serial No.
2) 3) 4) 5) 7) 8) 9) 10) 11) 12) Introduction Literature review Objective & Hypothesis Research Methodology Result Analysis Conclusion Suggestion / Limitations References Annexure

Particulars

Page No.
6-11 12-13 14 15-16 22 23-25 26 27 28 29-70

Introduction (all headings - Font size 14, 1.5 margin, justified)

The stock market of India have witnessed a radical transformation in last the decade or so owing to the judicious policy measures implemented through the financial sector reforms of nineties. The adoption of international quality trading and settlement mechanisms and reduction of transactions costs have made the investors, domestic and foreign, more optimistic which in turn evidenced a considerable growth in market volume and liquidity. The market features a developed regulatory ______________________________________________________________________________________ ______________________________________________________________________________________ ________________________________etc. (all text- Font size 12, 1.5 margin, justified)

LITERATURE REVIEW The efficiency of stock markets is one of the most controversial and well studied propositions in the literature of capital market. Even if there have been a number of researches and journal articles, economists have not yet reached a consensus about whether capital markets are efficient or not. (Board and Sutcliffe (1998)) showed that the Weekend Effect in the UK is not persistent but appears stronger during the market downtrends. Chang et al., (1993), (Arshad and Coutts (1996, 1997)) and (Steeley (2001)) found that Weekend Effect in the UK stock prices had disappeared during 1990s. (Theobald and Price (1984)) found evidence of Weekend Effect being more persistent in larger capitalized firms than in smaller ones but were not able to give clear explanation of such size based anomalies. (Choy and OHanlon (1989)) in addition to the above evidence found that the Weekend Effect in the UK stock market was strongly related to the settlement procedures but is not fully explained by it as in other markets. Also there was no significant influence of dividend payment pattern on the Weekend Effect. (Mills and Coutts (1995)) obtained similar results on the settlement procedures in the UK stock market. (Abraham and Ikenberry (1994)) found a relationship between Friday and Mondays return that for negative (Gibbons and Hess (1981)) found evidence for higher return variances for the US stocks on Mondays which was quite different from the return on other days of the week and is usually negative. (Berglund et al., (1984)) in a study of Finland market, found higher weekend returns due to the effects of institutional arrangements. ( Anup Agarwal and Kishore Tandon (1994)) in their study of 18 countries stock returns found evidence for significant positive returns on Friday in all countries except Luxembourg, also found highest stock return variance on Mondays and lowest on Fridays which was again documented due to market falling down in the previous week. (Kiran Rothak, Rishikesh Patel,) and (Ashvin Patil (2007)) in a study of Indian Stock Market using the data from January 1995 to December 1999 concluded that high stock returns on Wednesday and Monday and lowest returns on Friday due to t+5 rolling settlement effects. Another study of day-of-the week effect by (Golaka C., Nath and Manoj Dalvi) in the same market evidenced significantly higher returns on Mondays and Fridays than on other days of the week before rolling effect in January 2002 but after the introduction of rolling settlement, only Friday effect was seen in the market. (Bhanu Pant and Dr. T.R.Bishnoy (2001) analyzed the behavior of the daily and weekly returns of five Indian stock market indices for random walk during April 1996 to June 2001.They found that Indian Stock Market Indices did not follow random walk. (Shigguang Ma and Michelle Barnes (2001)) tested both Shanghai and Shenzen stock market for efficient market hypothesis using serial correlation, runs and variance ratio test to index and individual share data for daily, weekly and monthly

OBJECTIVES OF THE STUDY: 1) To examine the impact of various types of information on stock prices of companys listed under top 20 of BSE SENSEX. 2) To analyze the existence of anomalies in Indian Stock Market such as Monday effect, day of the week effect, Friday effect. 3) To examine whether Indian stock market, with focus on BSE SENSEX, is efficient or not.

DATA AND METHODOLOGY: Data used in this research will be based on monthly, weekly, and daily closing price of BSE SENSEX in year 2008 & 2009. Data set for samples are available on www.nseindia.com, CMIEs prowess and business beacon data base, www.yahoo.com\finance and www.economagic.com. We will be using various tests such as runs test, serial correlation, and filter rule, residual analysis etc. to measure different form of markets such as strong market semi strong market and week form of market.

Sample Size Two years daily monthly, weekly, and closing price of top 20 indices of BSE SENSEXfrom 01-01-2008 to 31-12-2009 has been taken as sample size. Sources: Secondary sources are being used. Various secondary sources: 1) Website of BSE 2) Journals 3) Articles etc. 4) CMIES PROWESS 5) Business Beacon Database Tools and Techniques Used (if any) Various tools are used such as: 1) Runs Test 2) ANOVAs Analysis Analysis will be done according to the result obtained by the application of above mentioned test and with the help of following:
1. Tables

2. Graphs

FOR EXAMPLE:
Formula used:
MEAN=(2N1N2/N1+N2)+ 1 SD^=(2N1N2(2N1N2-N1-N2)/ (N1+N2)^(N2+N1-1) Z=R-MEAN/SD

3. MONDAY EFFECT Mean

SD^

TUESDAY EFFECT

WEDNESDAY EFFECT
20.48 3 -0.016

THURSDAY EFFECT
20.48 3 -0.016 N1=20 N2=10 R=20

FRIDAY EFFECT
23.4 3.3 0.12

18.48 20.48 2.9 3 -0.16 -0.016 N1=18 N1=20 N1=20 N2=17 N2=19 N2=19 R=18 R=20 R=20

N1=23 N2=22

4.
5. According to the probability theory, 95% of the area under the normal curve lies within +/- 1.96

standard deviation of the mean. Since the calculated value 0.16, 0.016, 0.12, is less than +/- 1.96, we can say that the runs have occurred by chance. Therefore the null hypothesis, the stock prices move randomly in case of BSE SENSEX, is accepted here. This shows that the price movement on all days do not follow the same path but is actually dependent on the market condition. Hence Random Walk Hypothesis exists in the market.

Findings
In case of Monday the standard deviation is less as compared to Friday. This shows that Friday has got highest impact of all the days and the subsequent movement in the other developed stock markets of the world. The impact of Friday has been seen on Monday but the impact is lesser than all week days in case of Indian market. The continuous movement of stock prices, respective changes in other stock markets, any news related to companies or market or government in domestic as well as foreign market has an impact on the relative stock return and hence the market efficiency is affected. It was found that the week effect is more significant in case of Indian stock market with focus on BSE SENSEX as compared to week days effect.

Conclusion
The findings show that Monday and Friday effects are not significant, as is the case with other stock markets around the world, seasonality does exist. We also reached to the conclusion that the Day of The Week Effect which was clearly visible for the entire range of Data, Simply did not occur as the movement did not produces significant change in the return value. The mean return for all days remains same. This is an important conclusion which implies that during the period the market found to be perfectly efficient.

Suggestion / Limitation
______________________________________________________________________________________ ______________________________________________________________________________________ _________________________.

REFERENCES:
1.

Pant Bhanu and Dr.Bishnoy (2001),Testing Random Walk Hypothesis for Indian Stock Market Indices, paper presented at IICM conference in 2002, pp. 1-15.

2. Fama, E.F., (1970), Efficient Capital Markets: A Review of Theory and Empirical Work, Journal

of Finance, Vol.25, pp. 383-420.

3. Fama, E.F., (1965), The Behavior of Stock Market Prices, Journal of Business, January1965, pp.

34-105.
4. Theobald, M., Price, V. (1984), Seasonality Estimation in Thi-Markets, Journal of Finance, 39.2,

pp. 377-392.
5. Board J.L. and Sutcliffe C.M. (1988), The Weekend Effect in the UK Stock Market Returns,

Annexure
Before Date Return( Retur Abno.retu Index x) x2 Stock n (Y) y2 Xy rn 17185. 217.4 3-Dec-09 68 5 17101. - 0.239 2.230 4-Dec-09 54 0.4896 7 222.3 4 4.9747 -1.092 2.1342 16983. - 0.479 1.664 7-Dec-09 14 0.6923 3 218.6 4 2.7703 1.152 -1.5015 17227. 2.073 241.3 10.40 108.30 14.98 8-Dec-09 68 1.4399 3 5 71 85 5 7.8451 17125. - 0.353 3.915 15.330 9-Dec-09 22 0.5947 7 231.9 5 9 2.329 -3.8773 17189. 0.140 230.0 0.797 10-Dec-09 31 0.3742 1 5 8 0.6364 -0.299 -1.9979 17119. - 0.167 1.151 11-Dec-09 03 0.4089 2 227.4 9 1.3269 0.471 -1.3513 17097. - 0.015 226.5 0.373 14-Dec-09 55 0.1255 7 5 8 0.1397 0.047 -0.9353 16877. - 1.661 1.346 15-Dec-09 16 1.2890 6 223.5 3 1.8125 1.735 -0.4208 16912. 0.044 226.6 1.409 16-Dec-09 77 0.2110 5 5 4 1.9864 0.297 0.4179 16894. - 0.012 0.507 17-Dec-09 25 0.1095 0 227.8 4 0.2574 -0.056 -0.0745 16719. - 1.065 0.878 18-Dec-09 83 1.0324 9 229.8 0 0.7708 -0.906 1.4755 16601. - 0.503 1.131 21-Dec-09 2 0.7095 4 232.4 4 1.2801 -0.803 1.3163 0.299 0.172 22-Dec-09 16692 0.5469 2 232.8 1 0.0296 0.094 -1.2487 17231. 10.43 1.632 23-Dec-09 11 3.2298 13 236.6 3 2.6644 5.272 -3.2171