March '2020
The IUP Journal of Financial Risk Management
Focus
The return determinants of
these stocks, the volatility in them and volatility spillover are interesting topics to study. Keeping these things in mind, the first paper, ?A Study of the Movement of Interest Rates and Spillover of Volatility and Returns Amongst the Leading Bank Stocks in India?, by Rakesh Shahani and Nikhil Nagpal, empirically investigates the impact of interest rates and foreign exchange rates on the movement of banking stocks in India. Using the weekly data of returns for the period April 2013-March 2018, the authors check for stationarity, autocorrelation, heteroscedasticity, volatility and volatility spillover. As per the results, the returns are found to be stationary. Bank Nifty, which is a sectoral index, is found to be an important variable which determines return, whereas the impact of interest rate is muted. Evidences of volatility persistence and spillover are reported in the study.
To test the efficiency of stock market, researchers have used testing for return generation patterns. If there is a pattern, it helps investors and portfolio managers to devise trading strategies and defy market efficiency. To find the pattern within the week, the second paper, ?Calendar Anomalies in Indian Stock Market: An Empirical Analysis?, by Nisha Jindal, uses data from January 2008 to December 2018, and Ordinary Least Square (OLS) and Generalized Autoregressive Conditional Heteroscedastic (GARCH) models. The study reports the presence of seasonality. Friday?s returns are found to be higher as compared to other days.
Financial liberalization acted as equalizer and has reduced the gender disparity. Women now are taking part in stock market investments. Because of the inherent responsible and caring nature, women tend to be more risk-averse compared to men and hence their investment behavior must be different from that of men. Keeping these things in view, the third paper, ?Factors Influencing the Investment Behavior of Women Investors: An Empirical Investigation?, by Sanjeet Kumar and Prashant Kumar, attempts to find the factors influencing the decision of women investors in selecting various investment avenues. Using survey data of 400 women investors and based on factor analysis, the study identifies seven factors influencing the decision of women investors. The factors identified can be categorized as sociocultural factors, personal factors, market-related factors, economic factors, investment-specific factors, firm-related factors and accounting information.
The fourth paper, ?Forecasting and Modeling of Indian Private Banks? Stocks: An Econometric Analysis for Prudent Investment for Investors and Traders?, by Gunjit Kaur, reports the interplay of the risk and return using data for private sector bank stocks. The paper uses different time horizon of daily and monthly returns for studying the risk and return characteristics of the chosen stocks. The differentiated time periods represent the holding period of traders and investors in the market. Monthly returns and risk go hand in hand and are higher than daily returns. For monthly returns, volatilities are not interrelated, whereas they are related for daily returns.
The last paper, ?Perception of Investors and Financial Experts Regarding the Impact of Fluctuations in Exchange Rate on Share Price?, by Roshan Kumar, uses primary data of investor and financial experts? perception for identifying the effect of exchange rate fluctuations on share price. Macroeconomic variables like inflation, crude oil price, gold price and exchange rate determine the share price and hence should be considered before investment decision making.
Consulting Editor
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| Article | Price (₹) | ||
| An Empirical Study on the Volatility Impact of Equity Derivatives on Underlying Spot Market |
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| The Impact of Behavioral Dispositions on Risk Endurance of Individual Investors: Application of Multiple Discriminant Analysis |
100
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| Exponential Weighted Moving Average of Selected Systematic Investment Plans of Mutual Funds and Their Risks |
100
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| The Relationship Between Direct Stock Market Return and Mutual Fund Return: A Study of Selected Mutual Fund Schemes |
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An Empirical Study on the Volatility Impact of Equity Derivatives on Underlying Spot Market
The study examines the impact of equity derivative trading on the volatility of spot market in India. Monthly time series data for the period from January 1, 1996 to December 31, 2016 is used. The results from the Hausman test and structural break test provide support that there is a significant influence of the introduction of stock futures and stock option on the stock market volatility. High volatility of prices is considered as a major risk in derivative trading, but this situation benefits the investors. As the regulatory process continues, policymakers must seek to ensure that the derivatives market is a venue to manage risk, rather than a source of risk itself. Thus, the investor should be aware and understand that the derivatives are not risky, but it is the responsibility of the investors to ensure that the risks are effectively controlled and limited to the levels that do not pose any threat to their investment position, and consider it as a hedging tool instead of speculative tool.
The Impact of Behavioral Dispositions on Risk Endurance of Individual Investors: Application of Multiple Discriminant Analysis
For the rapid development of an economy, investment of excessive funds is important. But in today?s dynamic environment, individual investor?s decision making is influenced by several factors such as behavioral dispositions, where emotions play an important role in investing. Further, the investment decisions are also influenced by the risk-tolerant behavior of the investors. The present study is an attempt to know the impact of behavioral biases on the risk endurance level of investors. For the study, a sample of 600 individual investors was taken from the state of Haryana. A structured questionnaire was prepared, in which statements of behavioral biases and risk-taking ability of investors were included. The analysis was done using the technique of multiple discriminant analysis. It is concluded that behavioral biases impact the risk-taking capacity of investors, and further investors have been categorized into three groups, viz., risk intolerant investors, conservative moderate investors and rational confident investors.
Exponential Weighted Moving Average of Selected Systematic Investment Plans of Mutual Funds and Their Risks
Whether it is a share or any other market instrument, the prices of such investments are subject to volatility. The performance of such investment is based on the market trend. Systematic Investment Plan (SIP) of mutual fund investment, unlike lump-sum investment, is done systematically throughout the investment period. Though the investors are not worried about market trends on daily basis, the SIP is subject to price variations. Thus, the performance of SIP of selected funds and their risks are dealt with in this study. The historical data of various SIPs prove that risk has long tail, implying less risk. Similarly, the daily Net Asset Values (NAVs), mostly of respective schemes, are higher than the average NAVs of the schemes. The findings reveal that the most recent data influences the occurrence of the NAV of today's fund. In the long run, decay effect removes this trend. The findings also show that investment in SIP is less risky than any other mutual fund investments in the market.
The Relationship Between Direct Stock Market Return and Mutual Fund Return: A Study of Selected Mutual Fund Schemes
Mutual funds play a significant role in financial intermediation, development of capital markets and growth of the financial sector as a whole. Plenty of funds, e.g., equity mutual fund, debt fund, balanced fund, liquid fund, etc., are available where the investors can put their money. Different equity fund schemes have different return potentiality due to selection of stock, ability of the fund manager, and beta coefficient of the return of the particular equity mutual fund schemes. The present study finds out the correlation between return of five selected large cap, midcap and multicap equity mutual fund schemes, namely, HDFC Equity Fund-G, Aditya Birla Sunlife Frontline Equity Fund-G, Kotak Standard Multicap Fund-G, HDFC Midcap Opportunities Fund-G, and SBI Bluechip Fund-G and the return of the selected stock market index, Nifty, for a period of 10 years from April 1, 2009 to March 31, 2019. The results reveal that HDFC Equity Fund-G, Aditya Birla Sunlife Frontline Equity Fund-G, SBI Bluechip Fund-G, and HDFC Midcap Opportunities Fund-G have high positive correlation with the return of Nifty index.