The Relationship Between Fund Performance and Fund Characteristics: Evidence from India

-- Vijayakumar N, Muruganandan S and Chandra Sekhara Rao K

This study examines the relationship between fund performance and fund characteristics. The fund performance is measured by fund return and its determinants are measured by standard deviation, fund size, turnover ratio, income ratio and expenses ratio. The study employs panel data analysis and observes that the fund performance is positively influenced by its volatility, size and expenses ratio, and negatively related with turnover ratio. The study also finds no evidence of income ratio relating to fund performance. Overall, the study observes that the fund managers are generally not aggressive to new information in the market. Moreover, the return generated by fund managers also seems to be insufficient to cover the costs associated with investments

© 2012 IUP. All Rights Reserved.

Equity Premium Puzzle, Prospect Theory and Subprime Crisis

-- Mouna Abdelhédi-Zouch, Mouna Boujelbène Abbes and Younès Boujelbène

The equity premium puzzle is one of the most important phenomena in finance. Related to behavioral finance, we use the concept of Myopic Loss Aversion (MLA) to explain the puzzle in developed and emerging markets. Empirically, we support the robustness of the positive equity premium across the most developed and emerging markets before the subprime crisis. However, the equity premium becomes negative during the subprime crisis, except for the financial markets of Hong Kong, India and Tunisia. Using a simulation method, we find that myopic emerging and developed market investors evaluate their portfolios annually. Furthermore, the optimal stocks allocation by myopic loss-averse investors is higher in emerging markets than in the developed markets.

© 2012 IUP. All Rights Reserved.

Shareholder Gains from Private Equity Placements in India

--Amitabh Gupta

In recent years, private equity has emerged as an important destination for investments in India. This paper examines the effect of private equity placements on shareholder value, changes in liquidity and changes in ownership structure around the announcement of private equity deals. We find that the Indian stock market reacts positively to private equity transactions. The trading volume decreases after the private equity deal; the number of trades and turnover improve after the deal but market capitalization does not increase. There is also a dilution of promoters’ shareholdings after the deal. An analysis of cross-sectional abnormal returns shows that there is a negative relation between growth opportunities and abnormal returns, confirming that private equity announcements have no impact on the growth opportunities of a firm.

© 2012 IUP. All Rights Reserved.

Value Versus Growth: Evidence from India

-- Soumya Guha Deb

For many years, researchers have argued that ‘value strategies’ outperform the ‘growth strategies’. In this paper, we have attempted to explore this possibility in the Indian stock market and tried to find the magnitude and pattern of value premium, if any. The results indicated that value premium did exist in the Indian stock market during the study period, i.e., January 1996 to December 2010. The premiums were visible for both absolute performance measures like average returns and buy-and-hold returns, and risk-adjusted performance measures like Jensen’s Alpha, Treynor’s ratio, Sharpe’s ratio and Fama measure.

© 2012 IUP. All Rights Reserved.

Testing the Random Walk Model in Indian Stock Markets

-- V D M V Lakshmi and Bijan Roy

The present study attempts to examine the random movements in stock indices in the Indian equity market. It tests the random walk hypotheses in daily, weekly and monthly returns of six Indian stock market indices from January 2000 to October 2009. The indices considered for the purpose of the study include Nifty, CNX Nifty Junior, NSE 500, SENSEX, BSE 100 and BSE 500. The study uses Jarque-Bera (JB) Test for testing normality in return series. It also applies Box Pierce Q-Statistics and Ljung-Box (LB) statistics, and Augmented Dickey-Fuller (ADF) test to test whether return series follow random walk or not. The results indicate that there are no random movements in share indices. However, when we apply Lo and MacKinlay (1988) variance ratio test under the assumptions of both homoskedasticity and heteroskedasticity, we observe contradictory results. It is also found that sometimes heteroskedasticity is the source of non-random behavior in share indices.

© 2012 IUP. All Rights Reserved.