An Econometric Assessment of Performance of Indian Capital Market

Abstract

During last two and half decades there has been a paradigm shift in Indian capital market. The applications of

technology in the payment and settlement systems have made the Indian capital market comparable with the

international capital markets. Now, the market features a developed regulatory mechanism and a modern market

infrastructure with growing market capitalization, market liquidity, and mobilisation of resources. However, the

market has witnessed its worst time with the recent global financial crisis that originated from the US sub-prime

mortgage market and spread over to the entire world as a contagion. The capital market of India registered a

sluggish performance. In this context, it is imperative to conduct empirical analysis to study the performance of

Indian capital market. It is with this backdrop, this paper attempts to analyse the key market parameters such as

market size, market liquidity, market turnover ratio, market volatility, and market efficiency of Indian capital

market over a period from 2002 to 2009 so as to assess its performance. The application of time series

econometric model provides the evidence of greater volatility and weak form inefficiency of the market.

However, the market shows strong potential for greater market size, more liquidity and reasonable market

turnover ratio.