Modeling Risk and Return across Indian Stock Market - An Empirical Study on Bombay Stock Exchange and National Stock Exchange

Abstract

Modeling risk and return in the stock market has always been a priority among the market participants because successful modeling may lead to consistent abnormal return by applying systematic trading strategies. However modeling is possible only if the market is inefficient where successive price changes do not follow random walk. Indian stock market was traditionally believed to be efficient in weak form. Unfortunately recent studies have raised serious questions over this traditional belief. Researchers have shown, based on advance statistical techniques, that return in Indian stock market does not follow random walk and hence there may be sufficient scope for modeling the return series for both mean return and risk. In this context, the article makes a sincere attempt to model both the mean return and volatility (Risk) in the Indian stock market based on various advance modeling techniques and thereby revisits the weak form efficiency of Indian burses.