Jun '19

The IUP Journal of Financial Risk Management

Focus

Information plays an important role in determining the price movements in the stock market. Price changes are a reflection of arrival of the news. The news can be related to the company, the industry, the macroeconomic conditions or the changes in economic policy. This issue presents four research papers, two of which report the effect of arrival of new information on stock price characteristics. The first paper, “The Impact of Market Conditions on the Aftermarket Survival of Initial Public Offerings in India: An Accelerated Failure Time Approach”, by Garima Baluja and Balwinder Singh, talks about information related to market condition and its impact on the firm’s decision to issue Initial Public Offerings (IPOs). Market conditions are external to the firm’s environment but play an important role in determining the success and survival of a company’s issue on exchange. Using logistic regression and survival analysis, the authors report a significant decline in survival rate and a growth in hazard rate of firms listed on exchanges through IPO during the first 50-60 months of listing. The authors conclude that issues in the period of high IPO activity fail to sustain longer on the exchange.

The second paper, “The Impact of Macroeconomic Announcements on Equity Markets: Empirical Evidence from India”, by V Srividya and D Susana, studies the impact of macroeconomic announcements on stock market volatility. Using the Volatility Index (VIX), which is also known as fear gauge of the market, the authors study the impact of six Indian and eight US macroeconomic announcements on the Indian VIX. It is observed that Indian Index of Industrial Production (IIP) and the US Federal Open Market Committee (FOMC) meetings affect VIX on the announcement days, whereas the US employment situation has a persistent announcement effect.

Global markets no longer work in isolation. Due to advancement in information technology, all the markets get relevant information together, eliminating informational advantages, if any. The third paper, “Cointegration of Developed Economies and Indian Stock Market After Economic Reforms”, by R Kumara Kannan and Selvam Jesiah, analyzes the impact of major incidents like economic reforms and incidents in foreign markets on the integration of Indian stock market with the global market. The authors investigate the presence and extent of market integration of Bombay Stock Exchange (BSE) with the major mature markets in the US, the UK, Germany and Japan.

Investment in stock market is subject to market risk. If the risk is identified, then it can be better managed. Keeping this in mind, the last paper, “Application of GARCH Models for Modeling Stock Market Volatility: An Empirical Study”, by N Shabarisha and J Madegowda, attempts to forecast and model stock volatility. Using daily closing prices of CNX Nifty for 10 years, the authors estimate the conditional volatility pattern in Indian benchmark stock index. Autoregressive Conditional Heteroskedasticity (ARCH) models are applied to study volatility clustering and leverage effect in returns. The study reports that asymmetric models are better in terms of explaining the stock market volatility.

- Ranajee
Consulting Editor

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Article   Price (₹) Buy
The Impact of Market Conditions on the Aftermarket Survival of Initial Public Offerings in India: An Accelerated Failure Time Approach
50
The Impact of Macroeconomic Announcements on Equity Markets: Empirical Evidence from India
50
Cointegration of Developed Economies and Indian Stock Market After Economic Reforms
50
Application of GARCH Models for Modeling Stock Market Volatility: An Empirical Study
50
       
Contents : (Jun '19)

The Impact of Market Conditions on the Aftermarket Survival of Initial Public Offerings in India: An Accelerated Failure Time Approach
Garima Baluja and Balwinder Singh

The market conditions are the most obvious and the least controllable that influence the decision of a company to issue an Initial Public Offering (IPO). The anecdotal literature suggests that timings are everything for an IPO. The market conditions are crucial not only for the performance of an issue but also for its survival on the trading exchange. The Indian primary market has witnessed several volatile market conditions in the post-SEBI (Securities and Exchange Board of India) era. The introduction of SEBI and abolition of Controller of Capital Issues (CCI) created ‘hot issue phenomenon’ in the market, wherein several new issues entered the market, however, only a few managed to survive in the aftermarket. Such high failure rate of IPOs and diverse market conditions generated the need to explore the survival profile of IPOs in India. Using the most sophisticated methodologies, i.e., logistic regression and survival analysis, the present study explores the survival profile of IPOs in hot market conditions of India. The empirical investigation reveals that most of the IPOs entered the market in hot issue period (1992-1996) but they failed to survive longer in the aftermarket. Overall, the Kaplan-Meier estimation exhibits a significant decline in survival rate and a growth in hazard rate during the first 50-60 months of listing. The analysis of market-specific variables and survival profile of IPOs reveals that issues in the period of high IPO activity fail to sustain longer on the exchange. Apart from this, several offering and company-specific factors also exhibit significant results. The findings of this study will have fruitful implication for the issuers, investors, regulators, and the entire capital market as they can evaluate the future prospects of IPOs and can take rational decisions accordingly.


© 2019 IUP. All Rights Reserved.

Article Price : ₹ 50

The Impact of Macroeconomic Announcements on Equity Markets: Empirical Evidence from India
V Srividya and D Susana

Understanding the behavior of the investors during macroeconomic announcements gives insights into the causes of stock market volatility and the relationship between macroeconomic announcements and stock markets. The Volatility Index (VIX) is the well-known indicator for stock market uncertainty and the present study examines the behavior of the Indian VIX during six Indian and eight US macroeconomic announcements. The findings suggest that the Indian Index of Industrial Production (IIP) and the US Federal Open Market Committee (FOMC) meetings cause impact on the announcement days. However, the US employment situation causes impact on the days before, during and after the announcement.


© 2019 IUP. All Rights Reserved.

Article Price : ₹ 50

Cointegration of Developed Economies and Indian Stock Market After Economic Reforms
R Kumara Kannan and Selvam Jesiah

The main purpose of the paper is to investigate whether and to what extent the Bombay Stock Exchange (BSE), India is integrated with the major mature markets in the US, UK, Germany and Japan. The dataset has been divided into: post Asian Crisis but before Euro Emerged (July 1997- January 2002); after Euro but before US Subprime Crisis (February 2002-November 2007); from the US Subprime Crisis before Modi’s emergence as national leader (December 2007-April 2014); and after Modi’s emergence (May 2014-July 2016). The study uses unit root test, Johansen-Juselius test, GARCH(p, q) model estimation, and Granger causality test for the purpose.


© 2019 IUP. All Rights Reserved.

Article Price : ₹ 50

Application of GARCH Models for Modeling Stock Market Volatility: An Empirical Study
N Shabarisha and J Madegowda

Return is the major attribute of an investment asset which can be construed as a random variable, and the ‘variability in return’ can be interpreted as volatility. Forecasting volatility and modeling it are the most prolific areas for research. This paper empirically investigates the conditional variance (volatility) pattern in Indian stock market based on financial time series data that consists of daily closing prices of CNX Nifty 50 market index for 10 years from April 2006 to March 2016. For the purpose of estimating conditional variance (volatility) in the daily returns of the index, Autoregressive Conditional Heteroskedasticity (ARCH) models are employed. Both symmetric and asymmetric models are used to capture stylized facts about CNX Nifty 50 market index returns such as volatility clustering and leverage effect. The findings of the study show that the asymmetric models are a better fit than symmetric models, confirming the presence of volatility clustering and leverage effect.


© 2019 IUP. All Rights Reserved.

Article Price : ₹ 50

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