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The IUP Journal of Behavioral Finance
Focus

Capital Asset Pricing Model (CAPM) gives a simple and elegant method of describing how the investors price assets in a rational world. It however fails to incorporate the human element. The first paper, “Asset Pricing and Contingent States”, by Ellouz Siwar, studies the human behavior through prospect theory, and shows that prospect theory violates several principles of expected utility. The author also develops a model of investor behavior in the evaluation of financial asset return and stock portfolios for 527 firms listed in the French market for the period July 1974 to March 2004, and finds that it has better explanatory power than the traditional CAPM. This is especially true for portfolios of small and medium size firms. The model also provides a way to test some hypotheses of the prospect theory. The second article, “Investment Choice of Occupants of Financial Services Industry: A Demographic Study”, by Manish Sitlani, Geeta Sharma and Bhoomi Sitlani, explores the association between demographic variables of gender, age, marital status, nature of occupation and household income, on investment choices. It also explores the association between qualification of participants in the financial services industry and investment choices. Investment choices are classified into five categories: Equity and Derivatives, Mutual Fund and Insurance, Fixed Return Investments, Real Estate, and Gold and Bullion. While the study finds no association between the demographic factors and investment choices, it finds a significant association between qualification and investment choices.

Initial Public Offering (IPO) is one among the available sources of financing. Equity issues as a subset of financing have got their own importance among academic community. A firm can choose to go public either through an IPO or mergers and acquisitions, in which the firm will sell itself to an existing listed firm. Firms with higher growth rate that face capital constraints will go for equity issue. The third article, “Initial Public Offering:

A Critical Review of Literature”, by Ragupathy M B, looks at the gamut of literature related to IPO, and covers issues related to ownership and control which need to be sorted before going for IPO—selection of intermediaries, involvement of venture capitalists, pricing and problems related to asymmetric information and impact of external factors on the success of the issue. The author concludes by providing a framework for successful IPO.

Volatility forecasting is an important area of research in financial markets, and immense effort has been expended in improving volatility models, since better forecasts translate themselves into better pricing of options and better risk management. The last article, “Modeling and Forecasting the Stock Market Volatility of S&P 500 Index Using GARCH Models”, by P Srinivasan, examines the superiority of symmetric GARCH model as against the asymmetric GARCH model. The models are evaluated based on out of sample forecasts, Theil-U statistic, and the usual evaluation criteria of Mean Absolute Error. The study models S&P 500 returns which are computed using daily data covering a period from January 1, 1996 to January 29, 2010. The study finds that symmetric GARCH models are superior in forecasting the conditional variance series, as compared to the asymmetric models, despite the presence of leverage effect.

-- Nikhil Rastogi
Consulting Editor

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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.

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Behavioral Finance