The debate over the efficient market hypothesis (EMH) has been getting louder, and the extent to which market liquidity affects efficiency needs an answer. This study verifies the random walk hypothesis (RWH) in the Indian capital market using a large set of data, including 50 large stocks and the index NIFTY. Unlike many other studies that consider variance ratio (VR) tests, the Hurst exponent test was also applied along with Lo–Mackinlay and Chow–Denning VR tests. Contrary to the findings of most of the recent studies, evidence from VR tests was not enough to reject the hypothesis. Results from the Hurst exponent test could address higher ‘Z’ value issues in VR tests and indicate mean reversion in prices. Quite unexpectedly, the study could not substantiate the conventional claim that liquidity enhances market efficiency. These findings, combined with disruptions in computing technology, indicate that technical analysis is likely to remain popular. Policymakers may reconsider incentivizing market liquidity.
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