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Impact
of Earnings Announcements on
Stock Prices: Some Empirical Evidences from India
---Amitabh Gupta
This
paper investigates the stock market reaction associated with
earnings announcements in the Indian stock market, and to
verify whether these announcements possess any informational
value. An event study was conducted on 50 companies, comprising
the CNX Nifty Index, which made earnings announcements in
March 2004. The sample is divided into two sub-samples of
`good' and `bad' news announcements respectively. In the case
of full sample, the study found an insignificant Average Abnormal
Return (AAR) on the announcement day. In contrast, the AARs
for `good' news sub-sample is greater than zero on the announcement
day. There is also a clear run-up in prices before the announcement
of earnings. The AAR is less than zero on the announcement
day in the case of sub-sample of `bad' news. It has been observed
that the price reaction in the case of `bad' news is much
larger than in the case of `good' news. The results for the
sub-sample indicate that the market reacts sharply to a decline
in earnings on the announcement day. Thus, the results of
the study indicate that earnings announcements contain important
information which cause stock prices to change.
©
2006 IUP . All Rights Reserved.
Sources
of Size Effect: Evidence
from the Indian Stock Market
--
Sanjay
Sehgal and Vanita Tripathi
Size
effect has been extensively documented for most of the world
capital markets including India. This paper deals with the
causes of the size effect in the Indian stock market. The
authors test whether the operating financial and liquidity
characteristics substantially differentiates small firms from
the large ones. It is also verified here whether small firms
are inherently riskier than the large ones, as implied by
the risk story argument. It is found that there is a statistically
significant difference between the small and large firms with
regard to operating efficiency, financial leverage, stock
liquidity, institutional neglect and distress level. The empirical
results highlight the overlapping of size and value (BE/ME)
effects, unlike in the US market, where they are found to
be independent risk factors. The support for the risk story
provides an argument in favor of multifactor benchmarks as
compared to the Capital Asset Pricing Model (CAPM), which
fails to explain fully the cross-sectional variations in the
average returns of size-sorted portfolios. The findings have
implications on mutual fund managers and other investment
strategists since a major part of the size premium which they
perceive as an opportunity for arbitrage could actually be
a compensation for unaccounted risk.
©
2006 IUP . All Rights Reserved.
Informational
Efficiency, Parameter
Stationarity and Benchmark Consistency of Investment Performance
-- Ramesh
Chander
Performance
evaluation portrays a manager's success based on examination
of the return generated in the investment process. Studies
have been conducted to review the investment performance of
managed portfolios, wherein Sharpe (1966), Treynor (1965),
Jensen (1968), Graham and Harvey (1996), Modigliani and Modigliani
(M2, 1997) have developed theoretical measures
to evaluate/rate the performance of managed portfolios; while
the studies conducted by Smith & Tito (1969), Klemosky
(1973), Jobson & Korkie (1981) and Kane and Marks (1988),
Elton, et al., (1996) dwell on the performance evaluation
of such portfolios. The present study has examined the investment
performance of managed portfolios with regard to sustainability
of such performance in relation to fund characteristics, parameter
stationarity and benchmark consistency. The results reported
in the study documented evidence supporting parameter stationarity
and the identical persistence of investment performance across
all the measurement criteria. Superior performance differentiation
was discerned in relation to the fund characteristics. The
results reported were very robust to provide credence to the
performance comparability across diverse market indices and
to negate the myth regarding fund managers' predisposition
for a particular index for better performance reporting. These
results have wider implications for investment managers to
devise trading strategies commensurate with the investor expectations.
Investors may also derive wisdom in the results with regard
to the absence of statistical evidence to fund manager's ability
to beat the markets. The significance of the study lies with
regard to the endorsement of parameter stationary and benchmark
consistency of the investment performance as its significant
contribution to the existing literature.
©
2006 IUP . All Rights Reserved.
An
Evaluation of the Volatility Forecasting Techniques in the
Indian Capital Market
-- M
Kakati and Rinalini Pathak Kakati
This
paper evaluates the performance of eight alternative models
for predicting the stock price volatility using S&P CNX
Nifty and CNX Nifty Junior Index return series. The competing
models contain both historical models (random walk, historical
mean, MA, ES, EWMA, AR) and models from the GARCH family (Standard
GARCH, GJR-GARCH). The study uses both symmetric error statistics
(ME, MAE, RMSE, MAPE, Theil-U) and asymmetric loss function
(LINEX, MME(U), MME(O)) to evaluate the forecasting accuracy.
The results show that the GARCH family models perform extremely
well in the asymmetric error statistics and also do well in
symmetric error statistics. Among historical models, random
walk is superior according to symmetric error statistics only.
It is relatively an `unbiased' model, systematically neither
over-predicting nor under-predicting the volatility. The study
does not find support for exponential weighted moving average,
exponential smoothing, regression model, and moving average
method, in contrast to the results found in various other
markets.
©
2006 IUP . All Rights Reserved.
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