Inefficiency and Speculation in the Indian Capital Market

Abstract

Is the Indian capital market inefficient? Does it reward low risk takers with high returns?

Barua and Raghunathan argued (“Inefficiency of the Indian Capital Market,” ‘Vikalpa,July-September 1986) that the Indian capital market was inefficient, based on an illustration. Ramesh Gupta contended, in a response article entitled “Is the Indian Capital Market Inefficient or Excessively Speculative?” (Vikalpa, April-June 1987), that their conclusion was erroneous as it was based on many assumptions and a hypothetical example.

Barua and Raghunathan re-examine their risk-return evaluation in the light of the actual developments over the last year in the case illustration used earlier. They argue that their conclusion on market inefficiency remains valid, notwithstanding the many changes in the assumptions.