The aim of the study is to examine the semi-strong form efficiency of the Indian stock market and determine whether the market reacts to information regarding bonus issues. Bonus issues are expected to send positive signals to investors and hence prices are expected to rise when an issue is announced. If there is a significant predictable increase in price after the bonus announcement that can be used to make abnormal profits, the market is considered to be inefficient. Twenty five bonus issues between 2002 and 2007 were studied using the event study methodology and abnormal returns were calculated using the market model. Although the study showed a positive market reaction to the bonus issues, the results were not statistically significant. This shows that the Indian market is semi-strong form efficient.

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The majority of efficient market research to date has focused on developed markets like United States and European securities market. Not much research has been done on strong form of the efficient market hypothesis in developing countries markets like India. The efficient market hypothesis suggests that stock markets are "information efficient", i.e., any new information relevant to the market is spontaneously reflected in the stock prices, so nobody can use such information to consistently earn abnormally high returns. This paper shows that the Indian market is strong form efficient to the extent that mutual fund managers could not out perform randomly constructed portfolios of index stocks for the period 2003-2007. This implies that an investor can build his/her own portfolio without any expert guidance and still earn returns comparable to professionally managed funds.

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This study compares CAPM and APT using macro economic variables to represent the APT factors. Analysis of 158 stocks listed on the Bombay stock exchange from 1991–2002 shows that stock returns are influenced by other variables in addition to the dominant market factor. Stock returns moved in the same direction as the BSE 200, production index, wholesale price index, dollar rate and difference in the six and three month foreign exchange forward premium. They moved in the opposite direction to call rates, T-bill rates, gold prices, three month foreign exchange forward premium, and differentials in long and short term interest rates. The significant factors varied with the period and interval used for calculation of returns. In the cross regressions, the BSE 200, call rate and dollar rate were priced in some sub periods. The multi index model using macroeconomic variables could also explain variation in returns marginally better than CAPM.