Investor needs to compare the performance of different industries or sectors before selecting stocks to invest. Industry performance is also important together with company performance in order to make any investment decision. Investment decision is very complex; many factors need to be analyzed. Decision making is driven by three factors - personal, behavioural and technical. Personal factors include age, income, education etc. Each investor differs from other so it is not appropriate to make investment on others’ investment decision. In short, one investment decision may not be fruitful for the other based on personal factors. Behavioural factor include greed, emotion, fear, ambition and many more. Behavioural factor influence the price of the asset which can move the price in any direction. In case of some rumour or other factor investor sentiment can drive the price of the asset; such changes can be temporary or last longer depending on the factors such as market situation, extent at which the rumour comes true and many more. Technical factor includes the analysis of market which is subdivided into technical analysis and fundamental analysis. Both are used together in order to make investment where technical analysis provide information about when to buy whereas later inform about what to buy.
The random walk and martingale models can be effectively organized by including the various types of relationships that can exist between variables under orthogonality condition. For random walk tests, the hypotheses test the independence, identicality and uncorrelatedness of the increment in stock returns.
The present study explores random walk tests for comparing the sector-wise sensitivity indices, and the results can be used to know the nature of the stock price movement. Compliance with random walk 1, 2 and 3 has different implications on forecast-ability of sector wise index and stock price. Based on the results of random walk tests, the investors can take appropriate decisions regarding the formation of their portfolio.
Market efficiency or compliance to random walk tests leads to sustainability of economy, and stock market needs to enhance the market efficiency by reducing imperfections in the market dynamics. The market should cross information barriers to the extent possible and improve information dissemination among stakeholders to achieve higher market efficiency, as efficient market helps sustainable economic growth of the country.
GHOSH, S. (2023). RANDOM WALK TESTS FOR ASSESSING SUSTAINABILITY IN INDIAN STOCK MARKET. Journal of Emerging Technologies and Business Management, 10(2). https://jetbm.imtnagpur.ac.in/journal/vol10/iss2/2