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A
Reexamination of the Day-of-the-Week Effect on
the Indian Stock Markets
- -Ramesh
Chander, Kiran Mehta and Renuka Sharma
In
informationally efficient markets, investors and analysts
are not likely to predict stock price movements consistently.
Still, market participants make concerted efforts to earn
abnormal returns discerning some anomalous pattern in the
stock price movements. This study empirically scrutinizes
whether this pattern yields abnormal return consistently for
any specific day of the week. Four market series, namely,
the BSE Sensex, BSE 100, S&P CNX Nifty, and S&P CNX
500 were considered on a daily basis for a 10-year period.
The entire series is divided into two sub-periods, viz., (1)
pre-rolling settlement period, April 1997-December 2001; and
(2) post-rolling settlement period, January 2002-March 2007.
Contrary to the earlier findings, this study documents the
lowest Friday returns on the BSE in the pre-rolling settlement
period. The findings recorded for post-rolling settlement
period were in harmony for those obtained elsewhere in the
sense that Friday returns were the highest and those on Monday
were the lowest to document credible evidence for the day-of-the-week
effect. It may be inferred that the arbitrage opportunities
existed have not only subsided consequent to the introduction
of the compulsory rolling settlement but also the pattern
of market movements have become even more akin to that experienced
in the developed capital markets. On the whole, the study
documents the presence of the day-of-the-week effect in the
Indian stock markets.
©
2008 IUP . All Rights Reserved.
A
Structural Approach to Stock Market Returns, Risk-Free Rate,
and CAPM
- -Tamal
Datta Chaudhuri
The
paper develops a structural model, which shows that stock
market returns and the risk-free rate are interdependent.
It builds in macroeconomic and other structural features of
an economy, which are referred to quite frequently as affecting
the share price movements. This interdependence is estimated.
Given the above interdependence that is derived from the model,
the study also examines the causality between the above two
variables in terms of a Granger test and a Sims test. The
study then suggests that instead of using exogenous values
of stock market returns and the risk-free rate for deriving
the desired rate of return for individual stocks as per Capital
Asset Pricing Model (CAPM), one should use the estimated values
of these variables from the reduced form equations derived
from the model. This is tested with data of individual companies.
©
2008 IUP . All Rights Reserved.
Beta
Stationarity over Bull and Bear Markets in India
- -Rohini
Singh
Beta
is a widely accepted measure of systematic risk and is used
by practitioners for capital budgeting, portfolio formation,
and performance evaluation. It is important to know whether
beta is stationary overtime and to identify the factors that
may help forecast it. Since beta represents co-movement with
the market, it is pertinent to check if betas of individual
stocks and portfolios change over bull and bear market phases.
Regression analysis, paired t-tests, and correlation analysis
were used to study beta for 158 stocks and 15 portfolios in
the Indian stock market over 12 years from 1991 to 2002. Regression
analysis indicates that alpha and beta were not significantly
different for majority of the individual stocks and portfolios
during the alternating market phases. Paired t-tests, on the
other hand, shows evidence of non-stationarity in some of
the alternating periods and stationarity between all bull
periods. Analysis of the control groups also reveal that the
overall period was not stationary. Although correlation between
pairs of periods was fairly high and significant in some cases,
it was not consistent group-wise and was at odds with the
t-tests in some cases. Overall, the evidence of non-stationarity
of beta between bull and bear periods was not consistent and
cannot be put to practical use.
©
2008 IUP . All Rights Reserved.
Portfolio
Performance in Relation to Risk and Return and Effect of Diversification:
A Test
of Market Efficiency
- - Rakesh
Kumar and Raj S Dhankar
The
paper attempts to validate efficient market hypothesis in
Indian stock market by examining the relationship between
risk and return. The paper also examines the possibility of
diversification effect on portfolio risk, which is the composite
of market and non-market risk. The study relies on daily,
weekly, and monthly adjusted opening and closing prices of
BSE 100 composite portfolios for the period of June 1996 through
May 2005. The findings suggest that the relationship between
portfolio return and risk is very weak, based on daily return.
It is moderate in the case of weekly return. However, portfolio
risk and return exhibit a high degree of positive relationship
when monthly return is used. Portfolio non-market risk shows
a declining tendency with diversification.
©
2008 IUP . All Rights Reserved.
Significance
of Value Added Concept in
Inter-Firm Comparison
- - Niranjan
Mandal and Suvarun Goswami
Analysts
normally rely on traditional financial performance indicators
for analyzing the profitability and productivity of companies.
This study aims to analyze the significance of value added
concept of income for making inter-firm comparison. For the
purpose of analysis, the summary results of financial accounts
and value added accounts of two major oil corporations, viz.,
Indian Oil Corporation and Bharat Petroleum Corporation, have
been used. The study concludes that value added is a better
concept of income than net profit to assess the managerial
performance of a firm.
©
2008 IUP . All Rights Reserved.
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