Identification of persisting trend in the Indian stock markets using hurst exponent

Efficient market hypothesis states that the current share prices reflect all relevant information about the underlying company. According to this widely accepted hypothesis, it is impossible for investors to consistently outperform the indices in the long run. Furthermore, the Random Walk Hypothesis, which is consistent with the Efficient Market Hypothesis, states that stock prices evolve in a random manner and price changes are independent of each other. This implies an absence of any persisting trends in the stock market that could possibly be taken advantage of with market timing strategies. We apply the Rescaled Range methodology for calculating the Hurst Exponent to Indian stock market data from 1996 to 2015 to determine the persistence of any trends, and hence to check for the predictability of the Indian markets on different time scales. Our results show that Indian stock markets do not conform to EMH, especially on consideration of larger time scales. The results have large implications on the nature of investment strategies and investor behavior with respect to the Indian stock market.