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FII Inflows to India: Their Effect on Stock Market Liquidity and Volatility
-- Tanushree Mazumdar
Stock markets in India were opened to foreign capital flows in 1992, with its ramifications (both positive and negative). This paper examines two consequencesliquidity (positive) and volatility (negative)in the past decade on the Indian stock market(s). It finds that Foreign Institutional Investment (FII) flows have enhanced liquidity of the Indian stock market. Stock market liquidity is definitely higher post-liberalization. There is not much evidence to support the hypothesis that FII inflows have led to volatility in the returns in the Indian stock market(s). The paper uses Engel-Granger test of co-integration to examine the impact of FII inflows on the Indian stock markets.
© 2004, The IUP Journal of APPLIED FINANCE
The Impact of Option Introduction on the Volatility of an Underlying Stock of a Company: The Indian Case
-- Manisha Joshi and Chiranjit Mukhopadhyay
In this paper an attempt has been made to assess the impact of recently introduced "options" on the underlying stock of a company in the Indian equity markets. The effect of option introduction on the simple and continuously compounded return volatility, measured by the stock return variance, is examined for the initial 29 stocks on which options were first introduced on July 2, 2001 on the National Stock Exchange (NSE). Numerous studies performed in the developed markets for the same problem have presented contradictory results. The derivatives market is still nascent in India, and so far, to the authors' knowledge, no study has looked into this issue at the individual security level. In this paper, both conditional and marginal return volatilities before and after option introduction are first extracted by fitting appropriate ARMA models for the two periods. Then these models are utilized to investigate any change in marginal volatility using standard large sample tests, such as Wald's test, Likelihood Ratio Test and Lagrange Multiplier Test apart from the usual F-test, which is usually erroneously used, for checking the equality of variances in such situations. However, the change in conditional volatilities is checked using an F-test for comparing two innovation variances. The initial findings suggest that there is no significant change in the `mean' returns. The volatility exhibits a change but the results are not significant, suggesting that option introduction has had no effect on the volatility of the underlying stock.
© 2004, The IUP Journal of APPLIED FINANCE
An Empirical Analysis on Performance Evaluation of Mutual Funds in India: A Study on Equity Linked Savings Schemes
-- Nalini Prava Tripathy The reform process has sent signals to a wave of changes in savings and investment behavior adding a new dimension to the growth of financial sector. The Indian financial system in general and the Mutual Fund (MF) industry in particular continue to take turnaround from early 1990s. During this period, mutual funds have pooled huge investments for the corporate sector. Growth and development of various mutual fund products in Indian capital market has proved to be one of the most catalytic instruments in generating momentous investment growth in the capital market. In this context, close monitoring and evaluation of mutual funds has become essential. Therefore, the present study evaluates the performance of 31 tax planning schemes in India over the period 199495 to 2001-2002. This paper has examined the investment performance of Indian mutual funds in terms of six performance measures. The results indicate that the fund managers under study have not been successful in reaping returns in excess of the market or in ensuring an efficient diversification of portfolio.
© 2004, The IUP Journal of APPLIED FINANCE
Corporate Dividend Behavior in Emerging Markets: A Study of the Malaysian Corporate Sector
-- LVLN Sarma and Kok Lee Kuin This study examines the Corporate Dividend Behavior in the Malaysian context through John Lintner's Stock Adjustment Model and other variations of this model. Results of this replication will be useful for designing dividend policies at the firm level and to analyze the saving behavior at the macro level. The Trading and Services Companies listed on the Kuala Lumpur Stock Exchange constitute the sample for the present study carried out as cross-sectional analysis for the years 1998 to 2001. The results are found to be consistent with Lintner's model and they advance evidence that stable rather than erratic dividend policies are preferred by the Malaysian corporate sector. The corporate dividend behavior is represented by the twin parameters of target payout ratio and adjustment factor; there seems to be a certain degree of predictability in the dividend movement. Contrary to other studies carried out in the developing countries, the dividend behavior in the Malaysian corporate sector is found to be more stable relative to that of other emerging capital markets. The empirical results show that the main determinants of current dividends are the lagged dividends and the current earnings, which evidence is more similar to those in developed capital markets like the US. This observed desire for stable dividend policies on the part of corporate management offers additional support to the argument of `information content of dividends' in the context of dividend and market value of the firm. The period covered for analysis of dividend behavior is the one lying very close to the financial crisis in the South East Asian Region. The presence of concern for stable dividend policies, as revealed through the empirical results, is interesting in itself. This reflects the desire on the part of corporate management to compensate the shareholders for their sacrifices during financial crisis as well as the desire to use this financial policy as a signalling device; these results, thus, point towards patterns which are important for understanding the role of dividends.
© 2004, The IUP Journal of APPLIED FINANCE
Indian Venture Capitalists (VCs) Investment Evaluation Criteria
-- AK Mishra The Venture capital (VC) industry in India is of recent origin. However, the average investment value of each deal in India has grown from $3.85 mn in 2000 to $7.89 mn in 2001.These developments, together with the recent steps taken by government to promote venture capitalism in India, provide an opportunity for an examination of venture capital industry in India. This paper analyzes the validity of venture evaluation model in India by directly comparing the relative importance of evaluation criteria on the funding decision with the relative importance to factors influencing venture's empirical performance. In the light of the differences in investment opportunities around India, and the nature of industrial development in South East Asia in general, the author anticipated that the investment criteria employed by Venture Capital Firms (VCs) in India would differ. A questionnaire was administered to venture capitalists (regular members of Indian Venture Capital Association) to determine the criteria they use to decide on funding new ventures. The response rate was 100%. A list of 42 criteria was developed on previously developed lists. The criteria fell into six groups: the entrepreneur's personality, the entrepreneur's experience, characteristics of the product or service, characteristics of the market, financial consideration and characteristics of venture management team. Answers were given on four point rating scales. The results reveal that criteria adopted by Indian VCs are different from those adopted by VCs in other countries including US. The results also confirm that the entrepreneur's personality and experience are seen as being primary indicators of the venture's potential.
© 2004, The IUP Journal of APPLIED FINANCE
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