ANOMALIES IN INDIAN STOCK MARKET – AN EMPIRICAL EVIDENCE FROM SEASONALITY EFFECT ON BSEIT INDEX

Abstract

Evolution of Efficient Market theory had ushered a significant change in pricing capital asset.  Before the  development of Efficient market theory by Fama in 1970s, there was no comprehensive theory on pricing of capital assets. Earlier to Fama(1970), various economists like Louis Bacheliar, Alfred Cowles, Holbrook Working etc have discusses about Random walk behaviour of stock price movement, but they could not succeed in providing a comprehensive theory on asset pricing. Fama(1970) had come out with three different forms of Efficient market hypothesis i.e., Weak form, Semi-strong form and Strong form of efficient markets. Weak form of efficient markets asserts that all the published information must be reflected in stock prices, semi-strong form holds that all the available information must be reflected into the stock prices, whereas strong form of efficient markets contends that all the published and unpublished information must be reflected into the stock prices. Though, the weak form and strong form of efficient markets do not have much practical relevance, semi-strong form of efficient markets has its implications on the real life world of financial markets. Semi-strong form of efficient markets postulates that all the investors in the market will discount the published information at the similar level. But real life conditions are quite different, different investors have different levels of understanding of the available information and it leads to estimation of different levels of stock prices by different investors. Anomalies in stock market are the imperfections in discounting the available information by the market participants. In the present study, a modest attempt has been made to examine the anomalies present in the Indian stock market in the form of seasonality effect.  The study has considered BSEIT Index as a proxy of Indian Information Technology sector stocks and BSE-Sensex is surrogated for Indian stock market. Period of study is from april, 1999 to march, 2013. The results of the study highlight the fact that the Indian IT Sector was experiencing seasonality effect. The study also concludes that the BSE-Sensex has significant impact on the volatility of Indian IT sector.