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Journals >>
Finance
The IUP Journal of Behavioral Finance

June '11
Focus

Capital Asset Pricing Model (CAPM) gives a simple and elegant method of describing how the investors price assets in a rational world. It however fails to incorporate the human element.

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Archeology of Behavioral Finance
50
Survey of the Phenomenon of Overreaction and Underreaction on French Stock Market
50
Does Personality Traits Influence the Choice of Investment?
Details
50
Does Coarse Thinking Matter for Option Pricing? Evidence from an Experiment
50
Spot Return Volatility and Hedging with Futures Contract: Empirical Evidence from the Notional Commodity Futures Indices of India
50
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Archeology of Behavioral Finance

-- Christophe Schinckus

Behavioral finance results from an interdisciplinary convergence of cognitive psychology and financial economics. The apparition of behavioral approach in finance is generally dated back to the 1980s and this emergence is directly in line with the development of a more behavioral economics. A few books or papers are dedicated to the history of behavioral finance. However, some elements favorable to the emergence of behavioral approach in economics and finance existed before the 1950s (before the advent of behavioral economics). This paper presents an archeology of behavioral finance by proposing a historical analysis between contemporary behavioral and some forerunner works developed in the first part of the 20th century.

© 2011 IUP. All Rights Reserved.

Article Price : Rs.50

Survey of the Phenomenon of Overreaction and Underreaction on French Stock Market

-- Ellouz Siwar

The hypothesis of financial market efficiency predicts that the stock prices show instantaneously all the applicable information available on the market (Fama, 1970). If the market is efficient, and if the investors are neutral to the risk, then the stock prices are unpredictable. This paper studies the predictability of stock returns listed on the French stock market. The objective of this paper is to examine the nature of the phenomenon characterizing the behavior of the prices. It is about examining the phenomena of underreaction and overreaction on the French stock market during the period 1974-2004. If these two phenomena do not exist, then the stock prices follow a random walk. We adopt the methodology of De Bondt and Thaler (1985) for the construction of winning and losing portfolio and performed different econometric tests to study the phenomena of underreaction and overreaction. We find that the hypotheses of overreaction and underreaction are rarely significant. Therefore, we can say that the variation of stock returns is often unforeseeable which is based on the sets of ex post returns.

© 2011 IUP. All Rights Reserved.

Article Price : Rs.50

Does Personality Traits Influence the Choice of Investment?

-- K Chitra and V Ramya Sreedevi

An investor’s investment in stock market is influenced by a large number of factors. Stock market’s performance is not only the result of intelligible characteristics or herd behavior, but is also due to the influence of psychological and personality characteristics that are still baffling the analysts. The study focuses on analyzing the influence of seven personality traits—emotional stability, extraversion, risk, return, agreeability, conscientiousness and reasoning—on the choice of the investment pattern. The results of the study show that these personality traits of the investors have an impact on the individuals while taking decisions and also have a strong influence on determining the method of investment. The study found that the influence of personality traits on the investment decision is more compared to that of demographic variables.

© 2011 IUP. All Rights Reserved.

Article Price : Rs.50

Does Coarse Thinking Matter for Option Pricing? Evidence from an Experiment

-- Hammad Siddiqi

Mullainathan et al. (2008) present a model of coarse thinking or analogy-based thinking. The essential idea behind coarse thinking is that people put situations into categories, and the values assigned to attributes in a given situation are affected by the values of corresponding attributes in other co-categorized situations. This hypothesis is tested in an experiment on financial options against the benchmark of arbitrage-free pricing. First, whether a financial option is priced in analogy with its underlying stock (transference) is tested. Second, variations in the analogy between a financial option and its underlying stock matter (framing) are tested. The results show evidence in support of both transference and framing.

© 2011 IUP. All Rights Reserved.

Article Price : Rs.50

Spot Return Volatility and Hedging with Futures Contract: Empirical Evidence from the Notional Commodity Futures Indices of India

-- Santhosh Kumar and M A Lagesh

This study investigates price volatility and hedging behavior of four notional commodity futures indices which represent the relevant sectors like Agriculture (AGRI), Energy (ENER), Metal (META) and an aggregate of Agricultural, Energy and Metal commodities (COMDX), retrieved from the commodity futures exchange market, Multi Commodity Exchange (MCX), of India. After adjusting for dates and missing observations, due to holidays, a total of 1,563 daily closing prices over the period of June 8, 2005 to August 31, 2010 have been employed to measure the volatility and hedge ratio. A GARCH (1, 1) model was employed to measure the spot return volatility of respective indices. DVECH-GARCH, BEKK-GARCH and CCC-GARCH were utilized to estimate the time varying hedge ratio. Further, we went for an in-sample performance analysis of the hedge ratios estimated from bivariate GARCH models by employing hedged return and variance reduction approaches. The empirical evidence confirms that all the models were able to reduce the exposure to spot market as perfectly as possible in comparison to the unhedged portfolio.

© 2011 IUP. All Rights Reserved.

Article Price : Rs.50

 
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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.

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