© 2013, IJARCSSE All Rights Reserved Page | 739 Volume 3, Issue 11, November 2013 ISSN: 2277 128X International Journal of Advanced Research in Computer Science and Software Engineering Research Paper Available online at: www.ijarcsse.com Fractal Market Hypothesis in Indian Stock Market Krishna Kumar Singh* 1 Dr. Priti Dimri 2 Madhu Rawat 3 1 Research Scholar, 2 Associate Professor and Head, 3 Assistant Professor Dept. of Computer Science, Dept. of Computer Science, Dept. of Computer Science, GBPEC, Ghurdauri, GBPEC, Ghurdauri, GBPEC, Ghurdauri, Pauri Garhwal, Uttarakhand , India Pauri Garhwal, Uttarakhand, India Pauri Garhwal, Uttarakhand, India Abstract - In current market scenario, capital market largely relies upon Efficient Market Hypothesis (EMH) but other existing hypothesis like Heterogeneous Market Hypothesis (HMH), Arbitrage pricing Theory (APT), Capital Asset Pricing Model (CAPM), Fractal Market Hypothesis (FMH), etc. are equally good and if numerical values and formulae are developed then prediction of the market will become much easier. Financial markets of the third and fourth world countries are relatively untouched with these methods because of various reasons. In this paper, considering the prices of State Bank of India (SBI) from Indian capital market is being analyzed using Fractal Market Hypothesis which is non-linear, complex, modern and alternative to the other financial methods. Keywords- Fractal Market Hypothesis (FMH), Heterogeneous Market Hypothesis (HMH), Arbitrage pricing Theory (APT), Efficient Market Hypothesis (EMH), Capital Asset Pricing Model (CAPM), Forecasting. I. INTRODUCTION History of first trade and transaction of human being is not recorded but it is believed that the first transaction happened sometime around 10000 BC. First stock market trading took place in the year 1602; the Dutch East India Company was formed as a joint-stock company based in six locations with shares that were readily tradable. First Indian stock market trading struck in 1875 at Bombay Stock Exchange Ltd. The Trading took place in the hope of better tomorrow. In general there are two types of traders in the market one is called Technical and the other is called Fundamental also known a Technical School and Fundamental School. Both schools have their own advocacy about prediction of the market. A major difference between these schools is the period of forecast. Fundamental school forecasts for the long period of time where as Technical school forecasts for shorter period of time. But exact time horizon or length of the time is not been described anywhere in the literature. Technical traders are generally follow charts. Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.” [20]. According to the principles of Technical Analysis, there are three properties on which technical approach is based:  Market action discounts everything.  Prices move in trends.  History repeats itself Every school has its own mindset about length of time horizon. In developed countries, traders in financial markets are using developed scientific tools to predict the market but behavior but on the contrary, the third and the fourth world countries have their own micro and macro-economic factors which require customized forecasting tools[9]. Socio- economic factors like education level, poverty, population and others deeply affect the investment behavior in the market. Adoptability of new and relatively advanced non-linear tools in these markets is extremely low. According to the available secondary data, it has been observed that trading and investment behavior in India is very conservative and middle class population has less or no faith in the market because of its chaotic behavior, although people are relatively comfortable in the market through intermediaries like banks, mutual funds, brokerage houses etc. Motivation of this study comes from third property of the technical analysis which says that “History repeats itself” i.e. similar incidents are observed to happen in the history after some span of time which is termed by B Mandelbrot as self similar which is characteristic of Fractals[16][18]. This theory was first introduced by Benoit Mandelbrot in 1963 by studying the prices of cotton [11]. He found that patterns of self-similarity were present during the entire period 1900-1960. Mandelbrot used his fractal theory to explain the presence of extreme events in Wall Street[17]. In 2004 he published his book on the “misbehavior” of financial markets–“The (Mis) behavior of Markets: A Fractal View of Risk, Ruin, and Reward”. These finding were done only on the developed market but the fractal behavior of Indian market is yet to be explored and studied thoroughly [1][2].In view of all the above mentioned challenges, this paper tries to bring out the suitability of the non-linear chaotic behavior of the Indian market and its relevance in comparison to the other existing hypothesis like EMH. II. Literature Review Many theories have been developed for technical analysis like Fibonacci Numbers theory in 1202, Dow Theory in 1884, Elliott Wave Theory in 1920, The Golden Ratio and others. The most famous work done in technical analysis was initiated by Charles H. Dow. Over 125 years ago he founded a newspaper called, "The Wall Street Journal." Back in