A Search for Rational Sources of Stock Return Anomalies: Evidence from India

2017

AJFA

Self Cite

In this paper, we aim to identify profitable investment styles on the Indian stock market by using various combinations of important stock pricing anomalies consisting of. size, value, volume, profitability, earnings surprises, short term and long term prior returns. Using NSE200 stocks, three different investment styles viz. univariate, independent bivariate and (2015) model do not provide any incremental explanatory power over the three factor model, recommending the use of the latter as a baseline to evaluate investment strategies in India. The highest supernormal returns of 1.1% per month are obtained from combining attributes and employing the conditional bivariate investment strategy viz.E2L1 (earnings momentum-Liquidity), M2S1 (price momentum-size), E2M3 (earnings momentum-price momentum). The findings are pertinent to portfolio managers, financial regulators and other stakeholders.

“…Nor, 2006). Sehgal, Subramaniam and Morandiere(2012) and Sehgal and Vasishth (2015) confirm the presence of liquidity anomaly for the Indian stock market.…”

Section: Liquidity/volumementioning

confidence: 63%

Profitability of Style based Investment Strategies: Evidence from India

Subramaniam

Sharma

2017

AJFA

Self Cite

“…In this article, we study the anomalies present in the Indian market and compare them with the anomalies documented by Sehgal et al (2012). The anomalies identified by us on India data up to 2016 are compared with anomalies in Indian market existing up to 2010 as published by Sehgal et al (2012). The goal is to understand whether the anomalies are as persistent (as 2010) or fading away (in 2016) over time.…”

Section: Review Of Literaturementioning

confidence: 97%

“…In empirical literature too, a negative relationship between returns and liquidity has been identified for several mature and emerging equity markets (Drew, Marsden, & Veeraraghavan, 2006;Gharghori, Lee, & Veeraraghavan, 2009;Machado & Mediros, 2012). For the Indian stock market, Sehgal, Subramaniam, and Morandiere (2012) and have identified the presence of liquidity as an anomaly.…”

Section: Review Of Literaturementioning

confidence: 99%

Are Prominent Equity Market Anomalies in India Fading Away?

Sharma

Subramaniam

2019

Global Business Review

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In this study, we revisit prominent equity market anomalies documented for India, namely size, value, volume and momentum. Using data for NSE 500 companies, we test for the persistence of these anomalies for a recent period from July 2005 to June 2016 employing one-factor capital asset pricing model (CAPM) and three-factor Fama–French model as asset pricing benchmarks. We test for the robustness of these anomalies by (a) forming both quintile and decile portfolios and (b) forming univariate and variety of bivariate-sorted portfolios. Corner portfolios based on deciles provide greater return differentials compared to quintile portfolios. Bivariate-sorted portfolios do not seem to outperform univariate-sorted portfolios. The value and momentum anomalies are explained by risk models which is contrary to prior evidence. Size and volume anomalies continue to provide significant returns but seem to have faded substantially over time when compared with the past results. The findings about weakening prominent Indian equity market anomalies shall pose a challenge for portfolio managers who may have to look for other sources of extra-normal profits. Indian market also seems to be informationally more efficient which is in line with recent financial market reforms and growing emphasis on financial inclusion and corporate governance.

“…According to the volume anomaly (Illiquidity anomaly), stocks with less liquidity command an illiquidity premium and hence provide higher returns compared to high-volume stocks. Various studies in mature and emerging markets have analysed the relationship between stock liquidity and returns and have confirmed the presence of volume anomaly (see Amihud, 2002;Amihud & Mendelson, 1986;Blau et al, 2018;Campbell et al, 1993;Chiang & Zheng, 2015;Lee & Swaminathan, 2000;Pastor & Stambaugh, 2003;Sehgal & Vasishth, 2015;Sehgal et al, 2012;Sharma et al, 2019;Subramaniam et al, 2017).…”

Section: Introductionmentioning

confidence: 97%

Firm Attributes, Corporate Fundamentals and Investment Strategies: An Empirical Study for Indian Stock Market

Agrawal

Management and Labour Studies

Vasishth

2020

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We combine corporate attributes and fundamental factors for evolving different investment strategies using data from 200 companies listed in the National Stock Exchange (NSE) from 2005 to 2018. The results indicate the existence of equity market anomalies based on size, volume, earnings, cash flow variability, asset growth, price momentum, price-to-book ratio and profitability. The performance of trading strategies is sensitive to portfolio construction procedure, that is, forming 5/10/20 portfolios. Bivariate strategies generally perform better than univariate strategies in the Indian context. On an overall basis, the size-based strategy performs best with a mean excess return of 3.63 per cent per month. We further find that corporate fundamentals such as profitability, operating efficiency, liquidity, solvency, innovation and entry barriers help in filtering poor future performers that may have been recommended by attributes-based strategy. Our filtered portfolios based on firm attributes and corporate fundamentals outperform unfiltered portfolios, and their returns are not explained by multi-factor performance benchmarks.