Do the Stock Indices follow a Random Walk and a Set Pattern?

Abstract

The existing literature has not covered the selected area under this study. Hence to fill such void the author has chosen this particular research area in order to understand the set patterns on the selected variables: Largecap, Midcap, and Smallcap. The sample study was from April 2007 to December 2019. Johansen Cointegration test (1988), Vector Error Correction Model (VECM), and Chow and Denning (1993) test were applied based on the research gap found from the exhaustive documented literature survey. Since such an in-depth study was never conducted before under one study and the chosen variables are often overlooked with the overall stock market indices especially Smallcap and Midcap yet interestingly from the test results it was found that all the variables are moving together in the long run as well as in the short-run except Midcap and Smallcap that showed variance in the short-run. It was also found that there is an existence of transparency of prices in the indices in the entire sample period.