Assistant Professor at IPE Hyderabad Address: Department of Humanities and Social Science
Indian Institute of Technology (IIT) Kharagpur, West Midnapur, West Bengal
Pin- 721302
A B S T R A C T This paper investigates whether firm-specific characteristics explain idiosyncrat... more A B S T R A C T This paper investigates whether firm-specific characteristics explain idiosyncratic volatility in the stocks of non-financial firms traded in the Indian stock market. It employs the linear time series five-factor model, augmented with a liquidity factor and the conditional EGARCH model, to extract yearly idiosyncratic volatility. We estimate a panel data regression to quantify the relationship between firm-specific characteristics and the volatility of individual securities. The results show that idiosyncratic volatility is significant in emerging markets such as India, and that cross-sectional return variations of firms are associated with firm-specific characteristics such as firm size, book-to-market ratio, momentum, liquidity, cash flow-to-price ratio, and returns on assets. We find that the idiosyncratic risk documented in this study is associated with smaller size of company, higher liquidity, low momentum, high book-to-market ratio, and low cash flow-to-price ratio. The findings suggest need to develop alternative tools to make investment decisions in emerging markets.
ABSTRACT
In this article, the authors probe the role of irrational investor
sentiment in the dete... more ABSTRACT In this article, the authors probe the role of irrational investor sentiment in the determination of Indian stock market volatility. The authorsdeveloped anewirrationalaggregate sentiment index (IASI) to examine the issue. The conditional volatility is extracted from the nonlinear univariate models for the market indices and the IASI. The vector autoregression (VAR) is carried out to analyze the relationship between the volatility of irrational aggregate sentiment index and stock market volatility. The authors find a unidirectional causality from sentiment to stock market volatility, and their findings highlight the significance of sentiment in explaining the stock market volatility in India.
The present study probes the influence of investor sentiment on the predictability of Indian stoc... more The present study probes the influence of investor sentiment on the predictability of Indian stock market volatility exploiting the non-linear conditional mean–variance framework. We developed a broad based irrational aggregate sentiment index for an emerging market India to examine this issue. We employed ten aggregate market related sentiment proxies to construct sentiment index applicable for emerging stock markets. We used GARCH model and introduced sentiment in the mean framework. To capture the impact of lagged sentiment on stock market volatility and returns spread, we employed VAR-GARCH models. We find significant effect of investor sentiment on the stock market volatility. We also find that past returns and past investor sentiment affect the volatility negatively and positively. The negative investor sentiment influences volatility and supports the proposition that the noise traders' pessimism makes the markets highly volatile. We suggest investor sentiment captures the volatility asymmetry patterns in the returns.
The present paper empirically examines the theoretical linkage between stock market volatility a... more The present paper empirically examines the theoretical linkage between stock market volatility and macroeconomic volatility in emerging Indian stock market covering the data period from July 1996 to March 2013. Unlike the previous studies, the present study investigates the issue with two stage estimation techniques. Conditional volatility is extracted by employing univariate autoregressive conditional heteroskedasticity (ARCH) models. Further, multivariate VAR model along with impulse response function, block exogeneity and variance decomposition are carried out to analyze the relationship between stock market volatility and macroeconomic volatility. Data on macroeconomic variables namely output, foreign institutional investments, exchange rate, short term and long-term interest rates, broad money supply, inflation and stock market indices BSE Sensex and NSE Nifty are used for analysis. The findings suggest a linkage between macroeconomic volatility and equity market volatility.
This study addresses the question of whether the adaptive market hypothesis provides a better des... more This study addresses the question of whether the adaptive market hypothesis provides a better description of the
behaviour of emerging stock market like India. We employed linear and nonlinear methods to evaluate the
hypothesis empirically. The linear tests show a cyclical pattern in linear dependence suggesting that the Indian
stock market switched between periods of efficiency and inefficiency. In contrast, the results from nonlinear tests
reveal a strong evidence of nonlinearity in returns throughout the sample period with a sign of tapering magnitude
of nonlinear dependence in the recent period. The findings suggest that Indian stock market is moving towards
efficiency. The results provide additional insights on association between financial crises, foreign portfolio
investments and inefficiency.
This paper investigates the relationship between stock prices, exchange rate and demand for money... more This paper investigates the relationship between stock prices, exchange rate and demand for money in India during the period of post liberalization
in India. The objective of the paper is two-fold. First, the study aims to shed light
on the co-integrating properties of different monetary aggregates, stock prices,
exchange rate, interest rate, economic activity, and inflation in India. Specifically,
the purpose is to determine whether there is a stationary long run relationship
between demand for different monetary aggregates and their determinants. Secondly,
the study investigates the stability of the long run money demand function with its
determinants. For the analysis, monthly data from 1996:1 to 2010:8 is used. The
study employs the Johansen and Juselius Co-integration (1990) approach for checking the long run integration among the variables along with VECM model. Further,
Granger Causality test is carried out. The test results discloses the presence of more
than two co-integrating vector for each money demand specification. The long run
elasticity of demand for money reveals that money demand function is sensitive to
inflation, stock prices and economic activity. Unidirectional causality is reported
from stock prices and exchange rate to demand for money function.
The IUP Journal of Monetary Economics, Vol. IX, No. 2, 2011
This paper investigates the relationship between stock returns and inflation
in India during 199... more This paper investigates the relationship between stock returns and inflation
in India during 1991:4 to 2009:3. Weekly, monthly and quarterly indexes
of BSE Sensex and NSE Nifty are used. Weekly, monthly and quarterly
Wholesale Price Index (WPI) and monthly Consumer Price Index (CPI) are
used as measures of inflation. The analysis is also carried for the subperiod
2002:4-2009:3, and the pre-crisis and post-crisis analysis is conducted
through the analysis of the subperiod 2005:1-2009:4. Unit root tests,
Granger causality test and regressions are performed for examining the
nexus between the variables. Vector Autoregression (VAR) methodology
has been employed to investigate the causal link between stock returns and
inflation. Impulse Response Functions (IRF) check the response to
disturbance in the system. The results suggest that there is no significant
relation between stock returns and inflation in post-reform period in India.
A B S T R A C T This paper investigates whether firm-specific characteristics explain idiosyncrat... more A B S T R A C T This paper investigates whether firm-specific characteristics explain idiosyncratic volatility in the stocks of non-financial firms traded in the Indian stock market. It employs the linear time series five-factor model, augmented with a liquidity factor and the conditional EGARCH model, to extract yearly idiosyncratic volatility. We estimate a panel data regression to quantify the relationship between firm-specific characteristics and the volatility of individual securities. The results show that idiosyncratic volatility is significant in emerging markets such as India, and that cross-sectional return variations of firms are associated with firm-specific characteristics such as firm size, book-to-market ratio, momentum, liquidity, cash flow-to-price ratio, and returns on assets. We find that the idiosyncratic risk documented in this study is associated with smaller size of company, higher liquidity, low momentum, high book-to-market ratio, and low cash flow-to-price ratio. The findings suggest need to develop alternative tools to make investment decisions in emerging markets.
ABSTRACT
In this article, the authors probe the role of irrational investor
sentiment in the dete... more ABSTRACT In this article, the authors probe the role of irrational investor sentiment in the determination of Indian stock market volatility. The authorsdeveloped anewirrationalaggregate sentiment index (IASI) to examine the issue. The conditional volatility is extracted from the nonlinear univariate models for the market indices and the IASI. The vector autoregression (VAR) is carried out to analyze the relationship between the volatility of irrational aggregate sentiment index and stock market volatility. The authors find a unidirectional causality from sentiment to stock market volatility, and their findings highlight the significance of sentiment in explaining the stock market volatility in India.
The present study probes the influence of investor sentiment on the predictability of Indian stoc... more The present study probes the influence of investor sentiment on the predictability of Indian stock market volatility exploiting the non-linear conditional mean–variance framework. We developed a broad based irrational aggregate sentiment index for an emerging market India to examine this issue. We employed ten aggregate market related sentiment proxies to construct sentiment index applicable for emerging stock markets. We used GARCH model and introduced sentiment in the mean framework. To capture the impact of lagged sentiment on stock market volatility and returns spread, we employed VAR-GARCH models. We find significant effect of investor sentiment on the stock market volatility. We also find that past returns and past investor sentiment affect the volatility negatively and positively. The negative investor sentiment influences volatility and supports the proposition that the noise traders' pessimism makes the markets highly volatile. We suggest investor sentiment captures the volatility asymmetry patterns in the returns.
The present paper empirically examines the theoretical linkage between stock market volatility a... more The present paper empirically examines the theoretical linkage between stock market volatility and macroeconomic volatility in emerging Indian stock market covering the data period from July 1996 to March 2013. Unlike the previous studies, the present study investigates the issue with two stage estimation techniques. Conditional volatility is extracted by employing univariate autoregressive conditional heteroskedasticity (ARCH) models. Further, multivariate VAR model along with impulse response function, block exogeneity and variance decomposition are carried out to analyze the relationship between stock market volatility and macroeconomic volatility. Data on macroeconomic variables namely output, foreign institutional investments, exchange rate, short term and long-term interest rates, broad money supply, inflation and stock market indices BSE Sensex and NSE Nifty are used for analysis. The findings suggest a linkage between macroeconomic volatility and equity market volatility.
This study addresses the question of whether the adaptive market hypothesis provides a better des... more This study addresses the question of whether the adaptive market hypothesis provides a better description of the
behaviour of emerging stock market like India. We employed linear and nonlinear methods to evaluate the
hypothesis empirically. The linear tests show a cyclical pattern in linear dependence suggesting that the Indian
stock market switched between periods of efficiency and inefficiency. In contrast, the results from nonlinear tests
reveal a strong evidence of nonlinearity in returns throughout the sample period with a sign of tapering magnitude
of nonlinear dependence in the recent period. The findings suggest that Indian stock market is moving towards
efficiency. The results provide additional insights on association between financial crises, foreign portfolio
investments and inefficiency.
This paper investigates the relationship between stock prices, exchange rate and demand for money... more This paper investigates the relationship between stock prices, exchange rate and demand for money in India during the period of post liberalization
in India. The objective of the paper is two-fold. First, the study aims to shed light
on the co-integrating properties of different monetary aggregates, stock prices,
exchange rate, interest rate, economic activity, and inflation in India. Specifically,
the purpose is to determine whether there is a stationary long run relationship
between demand for different monetary aggregates and their determinants. Secondly,
the study investigates the stability of the long run money demand function with its
determinants. For the analysis, monthly data from 1996:1 to 2010:8 is used. The
study employs the Johansen and Juselius Co-integration (1990) approach for checking the long run integration among the variables along with VECM model. Further,
Granger Causality test is carried out. The test results discloses the presence of more
than two co-integrating vector for each money demand specification. The long run
elasticity of demand for money reveals that money demand function is sensitive to
inflation, stock prices and economic activity. Unidirectional causality is reported
from stock prices and exchange rate to demand for money function.
The IUP Journal of Monetary Economics, Vol. IX, No. 2, 2011
This paper investigates the relationship between stock returns and inflation
in India during 199... more This paper investigates the relationship between stock returns and inflation
in India during 1991:4 to 2009:3. Weekly, monthly and quarterly indexes
of BSE Sensex and NSE Nifty are used. Weekly, monthly and quarterly
Wholesale Price Index (WPI) and monthly Consumer Price Index (CPI) are
used as measures of inflation. The analysis is also carried for the subperiod
2002:4-2009:3, and the pre-crisis and post-crisis analysis is conducted
through the analysis of the subperiod 2005:1-2009:4. Unit root tests,
Granger causality test and regressions are performed for examining the
nexus between the variables. Vector Autoregression (VAR) methodology
has been employed to investigate the causal link between stock returns and
inflation. Impulse Response Functions (IRF) check the response to
disturbance in the system. The results suggest that there is no significant
relation between stock returns and inflation in post-reform period in India.
Uploads
In this article, the authors probe the role of irrational investor
sentiment in the determination of Indian stock market volatility.
The authorsdeveloped anewirrationalaggregate sentiment index
(IASI) to examine the issue. The conditional volatility is extracted
from the nonlinear univariate models for the market indices and
the IASI. The vector autoregression (VAR) is carried out to analyze
the relationship between the volatility of irrational aggregate sentiment index and stock market volatility. The authors find a unidirectional causality from sentiment to stock market volatility, and
their findings highlight the significance of sentiment in explaining
the stock market volatility in India.
behaviour of emerging stock market like India. We employed linear and nonlinear methods to evaluate the
hypothesis empirically. The linear tests show a cyclical pattern in linear dependence suggesting that the Indian
stock market switched between periods of efficiency and inefficiency. In contrast, the results from nonlinear tests
reveal a strong evidence of nonlinearity in returns throughout the sample period with a sign of tapering magnitude
of nonlinear dependence in the recent period. The findings suggest that Indian stock market is moving towards
efficiency. The results provide additional insights on association between financial crises, foreign portfolio
investments and inefficiency.
in India. The objective of the paper is two-fold. First, the study aims to shed light
on the co-integrating properties of different monetary aggregates, stock prices,
exchange rate, interest rate, economic activity, and inflation in India. Specifically,
the purpose is to determine whether there is a stationary long run relationship
between demand for different monetary aggregates and their determinants. Secondly,
the study investigates the stability of the long run money demand function with its
determinants. For the analysis, monthly data from 1996:1 to 2010:8 is used. The
study employs the Johansen and Juselius Co-integration (1990) approach for checking the long run integration among the variables along with VECM model. Further,
Granger Causality test is carried out. The test results discloses the presence of more
than two co-integrating vector for each money demand specification. The long run
elasticity of demand for money reveals that money demand function is sensitive to
inflation, stock prices and economic activity. Unidirectional causality is reported
from stock prices and exchange rate to demand for money function.
in India during 1991:4 to 2009:3. Weekly, monthly and quarterly indexes
of BSE Sensex and NSE Nifty are used. Weekly, monthly and quarterly
Wholesale Price Index (WPI) and monthly Consumer Price Index (CPI) are
used as measures of inflation. The analysis is also carried for the subperiod
2002:4-2009:3, and the pre-crisis and post-crisis analysis is conducted
through the analysis of the subperiod 2005:1-2009:4. Unit root tests,
Granger causality test and regressions are performed for examining the
nexus between the variables. Vector Autoregression (VAR) methodology
has been employed to investigate the causal link between stock returns and
inflation. Impulse Response Functions (IRF) check the response to
disturbance in the system. The results suggest that there is no significant
relation between stock returns and inflation in post-reform period in India.
In this article, the authors probe the role of irrational investor
sentiment in the determination of Indian stock market volatility.
The authorsdeveloped anewirrationalaggregate sentiment index
(IASI) to examine the issue. The conditional volatility is extracted
from the nonlinear univariate models for the market indices and
the IASI. The vector autoregression (VAR) is carried out to analyze
the relationship between the volatility of irrational aggregate sentiment index and stock market volatility. The authors find a unidirectional causality from sentiment to stock market volatility, and
their findings highlight the significance of sentiment in explaining
the stock market volatility in India.
behaviour of emerging stock market like India. We employed linear and nonlinear methods to evaluate the
hypothesis empirically. The linear tests show a cyclical pattern in linear dependence suggesting that the Indian
stock market switched between periods of efficiency and inefficiency. In contrast, the results from nonlinear tests
reveal a strong evidence of nonlinearity in returns throughout the sample period with a sign of tapering magnitude
of nonlinear dependence in the recent period. The findings suggest that Indian stock market is moving towards
efficiency. The results provide additional insights on association between financial crises, foreign portfolio
investments and inefficiency.
in India. The objective of the paper is two-fold. First, the study aims to shed light
on the co-integrating properties of different monetary aggregates, stock prices,
exchange rate, interest rate, economic activity, and inflation in India. Specifically,
the purpose is to determine whether there is a stationary long run relationship
between demand for different monetary aggregates and their determinants. Secondly,
the study investigates the stability of the long run money demand function with its
determinants. For the analysis, monthly data from 1996:1 to 2010:8 is used. The
study employs the Johansen and Juselius Co-integration (1990) approach for checking the long run integration among the variables along with VECM model. Further,
Granger Causality test is carried out. The test results discloses the presence of more
than two co-integrating vector for each money demand specification. The long run
elasticity of demand for money reveals that money demand function is sensitive to
inflation, stock prices and economic activity. Unidirectional causality is reported
from stock prices and exchange rate to demand for money function.
in India during 1991:4 to 2009:3. Weekly, monthly and quarterly indexes
of BSE Sensex and NSE Nifty are used. Weekly, monthly and quarterly
Wholesale Price Index (WPI) and monthly Consumer Price Index (CPI) are
used as measures of inflation. The analysis is also carried for the subperiod
2002:4-2009:3, and the pre-crisis and post-crisis analysis is conducted
through the analysis of the subperiod 2005:1-2009:4. Unit root tests,
Granger causality test and regressions are performed for examining the
nexus between the variables. Vector Autoregression (VAR) methodology
has been employed to investigate the causal link between stock returns and
inflation. Impulse Response Functions (IRF) check the response to
disturbance in the system. The results suggest that there is no significant
relation between stock returns and inflation in post-reform period in India.