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Price Volatility:
An Evaluation of the Indian Stock Market
During Global Financial Crisis
-- D Joseph Anbarasu and S Srinivasan
This paper studies the problems associated with the prediction of future share prices in the Indian context. The period chosen
for this study is highly critical due to the presence of financial crisis and meltdown as a result of subprime market. This study
tries to find out whether the Indian market, during the time of financial crisis and the meltdown across the world adjusts to the
new information or not. It is found that the trend projection almost lost its grip over the Indian share market during the study
period. A distribution in which the ratio of the fourth moment to the square of the second moment is greater than
3which is the value for a normal distributionappears to be more heavily concentrated about the mean, or more peaked, than a normal
distribution. Therefore, the share prices of the Indian market during the period of current financial crisis yields a typical leptokurtic
normal distribution. It means that there exists fatter tails and greater risk of extreme outcomes. It also reveals the high volatility of
the present share market. The study concludes that no market in the world is insulated from externalities as it is advocated in
the decoupling theories of today.
© 2009 IUP. All Rights Reserved.
Price Exploration and Financial
Market Efficiency
-- Diganta Mukherjee, Jyotiska Bhattacharjee and Suraj Dey
Efficiency has been a very important issue for financial markets all over the world ever since trading
began in the stock exchanges. The most ardent market observers believe that although short-term inefficiencies remain, the financial
markets are efficient in the long run. However, this question
has not been investigated in terms of a theoretical model in detail.
This issue has been addressed considering the two financial assets
in order to obtain a rigorous definition of market
efficiency. Through simulation and graphical verification, it is shown that the market is efficient
in the long run, albeit in a simplistic setting. It explores alternative value
generating processes by considering models with discrete jumps, heavy-tailed probability
models and a regime-switching model.
© 2009 IUP. All Rights Reserved.
Default, Liquidity and Credit Spread: Empirical Evidence
from Structural Model
-- Chebbi Tarek
Amongst the important issues related to credit risk
are the factors which affect yield spreads of corporate bonds. In
recent literature, the yield spread is regarded as a measure of a comprehensive risk premium to compensate investors for a
number of risks associated with corporate bonds. Using a first passage model in
which the default occurs when corporate asset
values hit a predefined default barrier, it is
concluded that the credit spreads associated with Tunisian bonds are highly
defined by default risks. It is to be noticed that residual spreads are sensible to
the dynamics of default barrier, depending on the
drift and volatility of a firm's assets values.
Moreover, this paper also explores the role of liquidity
risks in the pricing of corporate bonds. This liquidity risk is a priced factor for the yield spread of risky corporate bonds and the associated liquidity
risk premia helps to explain the credit spread puzzle.
© 2009 IUP. All Rights Reserved.
Multiscale Carhart Four-Factor Pricing Model: Application
to the French Market
-- Anyssa Trimech and Hedi Kortas
This paper focuses on a methodology aimed at analyzing the Carhart multifactor model (Carhart, 1997) over various
time horizons in the French Stock Market. The suggested approach exploits the decomposition scheme inherent to the
wavelet-based Multiresolution Analysis, allowing one to investigate the time scale relationships between stock returns and risk factors.
The empirical results show that the explanatory power of the wavelet-based four factor model is scale-sensitive. The market
factor is highly significant over the range of time scales and positively effects intermediate and long-term investment horizons.
Besides, the size factor is found to be negative for the portfolios constructed by small capitalization assets. The size risk also
becomes negative for big portfolios at the largest time scale. The value proxy HML, which is rejected for the unitary (single) scale
model is, however, significant over a large array of resolution levels (investment periods). Finally, it is found that the momentum
factor, within the multiscale framework, has a significant impact on the expected stock returns.
© 2009 IUP. All Rights Reserved.
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