Low Risk Anomaly: A New Enemy of Market Efficiency

-- Rohan Rambhia, Mayank Joshipura and Nehal Joshipura

Finance theory suggests that higher return comes with higher risk. This paper examines low risk anomaly in Indian stock markets by using the constituent stocks of S&P CNX 500 index of NSE for a 11-year period starting from 2001 to 2011. Monthly rolling iterations are used to form low and high volatility portfolios. The findings of the study endorse the presence of low risk anomaly in Indian stock markets as low volatility portfolio outperforms market portfolio as well as its high volatility counterpart on risk-adjusted basis. The results are consistent with those of Clarke et al. (2006a and 2006b) and others for developed markets.

© 2013 IUP. All Rights Reserved.

Managing Multiple Risks in Dairy Sector

--Hrabrin Bachev

Risks management studies in agrarian and dairy sector predominately focus on the technical methods and the capability to perceive, prevent, mitigate, and recover from a particular type of risk. In related literature, the risk is usually studied as other commodities regulated by market supply and demand, and the farmer’s willingness to pay for an insurance contract. At the same time, risk management analysis largely ignores the significant human nature-based risks, the critical factors for the managerial choice such as the institutional environment and the transaction costs, and diversity of alternative (market, private, collective, public, and hybrid) modes of risk management. This paper incorporates the interdisciplinary New Institutional Economics and presents a comprehensive framework for analyzing risk management in agrarian and dairy sector. The analysis of the modes, efficiency and challenges of risk management in Bulgarian dairy sector brings forth a number of academic, business and policy recommendations.

© 2013 IUP. All Rights Reserved.

Ownership Effects on Credit Risk Management Strategic Decisions: Evidence from Indian Banking Sector

--Anju Arora

The present study attempts to investigate the impact of bank ownership on Credit Risk Management (CRM) strategic decisions in Indian banking sector by using primary data regarding CRM strategic decisions of 24 public sector banks and 11 Indian private sector banks. The study observes that CRM strategic decisions are not significantly influenced by bank ownership, except with regard to the decision regarding the unit responsible for framing CRM policy. Apparent variations in strategic decisions are observed between public sector and private sector banks with regard to some issues. The study concludes that public sector banks prefer centralization of authority in strategic decision making. It also identifies the relatively weak areas that the sample banks should focus upon to strengthen their CRM framework. Thus, the findings of the study make important contribution to the ongoing debate on the impact of bank ownership on risk management practices.

© 2013 IUP. All Rights Reserved.

Risk Management in General Insurance Business in India

--T Joji Rao and Krishan K Pandey

Over the years, the general insurance companies have been undertaking extensive risk management activities to safeguard the investor as well as investment. In the present-day scenario the two aspects which are of great importance to the general insurance industry are: firstly, the opportunities in the Indian general insurance market and the resulting focus of players on achieving business growth and secondly, the ongoing process of calibrated de-tariffing. Though de-tariffing has provided players with significant opportunities in tapping markets and in coming times may provide even more opportunities, it has placed the onus of correct pricing on the players themselves. This has resulted in players preparing and emphasizing more on identifying risk parameters and pricing products based on risks. The players, under the immediate response to the pressure of a free-market scenario, have dropped the rates even in hitherto non-profitable businesses. An efficient risk assessment and management in general insurance industry is very important due to the entry of private players, corresponding policy changes and the present-day fact of unprofitable books and erosion of capital resulting from unmanageable claim ratios. The present study attempts to identify the various risk management tools applied by the general insurance companies in India and performs a time series analysis of the performance of general insurance business in India in the post-liberalization and postprivatization era.

© 2013 IUP. All Rights Reserved.