Is the Indian stock market efficient? Evidence from a TAR model with an autoregressive unit root

Abstract

This study uses a two-regime threshold autoregressive (TAR) model with an autoregressive unit root to examine the efficiency of the Indian stock market. Using 11 years' weekly data for two indices and 10 common stocks from the National Stock Exchange (NSE) of India, this study applies the Caner and Hensen (2001) methodology to simultaneously test for the presence of nonlinearities and unit root in the stock prices data. The main finding of this study is that Indian stock prices follow a random walk albeit the presence of nonlinearities in the data.