Abstract

This case study discusses the bonus issue announced by Infosys, Indian multinational IT major, in April 2015.The case also provides the result of a study, which showed that in most cases the share price rose on the record day as well as one year after the record date. Taking the clue from the study, is it correct to conclude that an investor can earn superior risk-adjusted returns by trading on information about a bonus issue? In the backdrop of this, the case study is helpful to test and analyze whether the behavior of the Indian stock market supported Weak, Semi-Strong, or Strong form of Efficient Market Hypothesis.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• To analyze whether a bonus issue acts as a signal of the upward movement of share price
• To test Efficient Market Hypothesis with real-time data
• To discuss the significance of Efficient Market Hypothesis for various market participants
• This case is meant for graduate/post-graduate level students as a part of the Security Analysis curriculum.

Keywords

Weak form, Semi-Strong form, Strong form, Run test, Autocorrelation test, Standard Error, Event study, Cumulative Abnormal Return (CAR), Cumulative average abnormal return (CAAR), Durbin-Watson Test, T-test, Squared Residuals