The results are robust for different levels of credit risk constraints. Their empirical approach can be generalized into two ways. First, any other risk factor that generates a premium in terms of expected return can be incorporated in the analysis as an additional dimension. Thus, not only the credit risk but also the other risks would be converted into market risk. Second, other measures of market and credit risk other than volatility and expected default can be used. For instance, VaR-based measures of risk may be used, although the numerical methods to generate the efficient surface frontier would be more complex.

The second paper, "Performance Evaluation of Indian Commercial Banks in the Prompt Corrective Action Framework: An Assurance Region Approach" by Ram Pratap Sinha, seeks to integrate the ratio approach adopted by the Reserve Bank of India with the Assurance Region based measure of technical efficiency to find out a composite Data Envelopment Analysis (DEA) based ranking in respect of 28 observed commercial banks for 2002-03 to 2004-05. After the onset of banking sector reform in India, the Reserve Bank of India adopted a system of Prompt Corrective Action with various trigger points and mandatory and discretionary responses by the supervising authority depending on the three major indicators of banking sector health: Net NPA, CRAR and Return on Assets. The results show that the observed private sector commercial banks have higher mean technical efficiency score compared to the observed public sector commercial banks. Out of the 28 observed commercial banks which were considered for the study, six were found to be efficient. A study of the technical efficiency scores across ownership groups reveals that the observed private sector banks have higher mean technical efficiency scores compared to their public sector counterparts. Finally, most of the observed commercial banks exhibit decreasing returns to scale for the period under observation.

The next paper, "Return and Risk Analysis of Indian Information Technology Sector Stocks" by R Prabahar, J Dhinakaran and Punithavathy Pandian, attempts to study the return and risk element of investing in the shares of Indian Information Technology Industry. Return and risk are inseparable in most of the investments, and it is important to determine how much risk is appropriate to attain the required rate of return from investing in any stock that an investor is considering. Even though every investment involves risk, it is higher in equity investments. Every investor in stock market puts his money in the anticipation of return in terms of price appreciation and dividend with minimized risk. The risk is composed of systematic risk (market risk) and unsystematic risk (company-specific). Systematic risk includes currency, inflation, foreign investment, political and regulatory, interest rate, economic, and terrorist risks. Even bad weather risk can affect certain market sectors such as retailers, agriculture, forest products, insurance, airlines and tourism. Systematic risk can not be eliminated by diversification within a given market. It captures the reaction of individual stocks or portfolios to general market swings. In the case of unsystematic risk the factors are specific, unique and related to the particular industry or company.

The authors find that the daily average mean returns of the six companies studied in this paper were lower than the daily mean return of the indices. The volatilities of the stock returns over the study period were much higher than that of the indices. The `b' values of the securities show that except CMC and Moser Baer, the other four securities were very aggressive. Finally, the unsystematic risk of the IT stocks were much higher than the systematic risk. The IT stocks may not be a safe bet for a risk averse investor, but the reward may be hefty for a risk taker in the short run than in the long run.

"Impact of Futures on Spillovers in the UK Stock Market" by Athanasios Koulakiotis, Constantinos Katrakilidis, Dionysios Chionis and Nicholas Papasyriopoulos analyzes the impact of information contained in various futures contracts on volatility spillovers between markets. In particular, the paper analyzes spillover effects between foreign cross-listings in tougher, similar and more lax regulatory environments with respect to the relevant domestic indices (FTSE100), and also with the home portfolios of cross-listed equities in the UK. The authors find that futures variables had a significant impact on volatility spillovers between markets.

Using Euro-denominated returns of European cross-listed shares trading in fourteen European stock exchanges, they show how currency, exchange rates, Treasury Bill, and Treasury Bond futures shocks significantly affected spillovers for the UK equity portfolios. For controlling the conditional and next period's impact of shocks, these could have a significant impact on the magnitude of stock return spillovers. In contrast, volatility persistence was generally found to be low and insignificant.

- Nupur Hetamsaria
Consulting Editor.