Valeed Ahmad Ansari

Momentum anomaly: evidence from India

Purpose - This paper aims to examine the presence of momentum profit in the Indian stock market and seeks to explore the sources of momentum profit employing both risk based and behavioral models. R2, idiosyncratic volatility, and delay measures are employed in order to test behavioral models. Design/methodology/approach - The paper follows Jegadeesh and Timans methodology in constructing momentum portfolios. Findings - The study finds strong presence of momentum profits in India during 1995-2006. The risk based models such as CAPM and Fama-French fail to account for the phenomenon. Idiosyncratic risk exhibits a positive relation with momentum, lending support to behavioural factors as source of momentum phenomenon. Practical implications - In forming portfolios, selecting the stocks which have been winners in the last three and six months can help investors and fund mangers earn substantial profit. Originality/value - The study employs behavioral variables to explain the momentum phenomenon. In the Indian context it is an unexplored area.

Capital Asset Pricing Model: Should We Stop Using It?

The Capital Asset Pricing Model (CAPM) predicts that expected returns on securities are a positive linear function of their market ß s (betas) and market ß is adequate to describe the cross-section of expected returns. There is a controversy regarding the empirical validity of CAPM. This article reviews the content and scope of the model, examines the issues in the controversy, and provides an empirical assessment of the model in India. It notes that the evidence is not sufficient to drop the use of CAPM; one must, however, recognize and understand its limitations.

A Theoretical Framework for Corporate Governance

We lack an overarching and unifying theory of corporate governance. The most popular theoretical framework, the agency theory, led to the evolution of the Anglo-Saxon model of corporate governance that is used widely to help the board of directors in curbing excessive executive power in the hands of management. However, with the blurring of the roles of the principal and the agent, the currently prevalent governance frameworks, based on this theory, have become self limiting and ineffective. Efforts to supplement the agency theory with alternative theoretical frameworks such as the stakeholder theory and the stewardship theory have, at times, tended to place the board of directors in conflict with their legal obligations that requires them to work in the interests of the shareholders. A governance model based on the Gandhian concept of trusteeship, while providing fresh insights, suffers from problems in implementation and remains, at best, an idealistic goal to aim for. We need new theoretical insights that will take us towards a comprehensive theory of governance. This paper seeks to revisit the discussion on the various theoretical frameworks for corporate governance and suggests that a new and different framework is required as the underlying theory for corporate governance. One such framework is based on viewing the �organization as an organism� with its primary focus on the organization�s longevity and growth and which seeks to maximize the long term strategic value for an organization.

Role of Venture Capital in Spurring Innovation and Entrepreneurship

In view of the potential role of venture capital in promotion of entrepreneurship and innovation, USA and many European nations have accorded top priority to the development of venture capital. The literature review of this paper discusses the problems faced by entrepreneurs in rasing funds for innovative projects and it also highlights the role of venture capital in promoting innovation and entrepreneurship. Further using survey method the perspective of entrepreneurs having an innovative project is studied to find the various types of assistance that be provided by a venture capitalist.

Hedging Rainfall Risk by Farmers Growing Soyabean in Jhalawar District

Rainfall risk to the yield of a crop can be hedged, to an extent, by the use of weather derivatives. The paper considers a theoretical model which maximises the expected utility of a farmer growing a crop, with respect to planned production. An option to hedge the weather risk to yield, through purchase of weather derivatives, is introduced. The case of farmers growing soyabean in Jhalawar district of Rajasthan in central India is taken as an example in order to determine the theoretical willingness to pay to hedge volumetric risk to yield.

Design and use of weather derivatives for farmers: the case of hedging rain risk by soyabean growers in Jhalawar district in India

In the absence of a market for weather derivatives in India, the paper discusses a hypothetical market, and how a contract could be structured when weather derivative trading is introduced. A survey was conducted in six villages in two districts in the state of Rajasthan in order to assess the inclination of small farmers to use weather derivatives to hedge yield risk and to determine their willingness to pay. The findings of the amount that the farmers would be willing to pay are used in this paper. The need of the hour is to have a simple method for determining the price of an option on a rainfall index, so that a possible contract is feasible both for the seller as well as for the buyer. This is brought out in the paper using the case of soyabean growers in Jhalawar district.

The Turn of the Month Effect in Asia-Pacific Markets: New Evidence

A predictable pattern in equity returns based on the calendar time is dubbed as calendar anomaly. The prevalence of calendar anomalies is considered evidence against the efficient market hypothesis. This article examines one of the most important calendar anomalies, the turn-of-the-month (TOM) effect, in 12 major Asia-Pacific markets during the period January 2000 to April 2015, using both parametric and non-parametric tests. Under investigation, 11 out of 12 markets exhibit significant TOM effects that are independent of the turn-of-the-year (TOY) effect. Moreover, these effects are not present during the period of financial crisis. The persistence of the TOM effect in these markets, even after a quarter of a century of its initial reporting, is a puzzle which needs an explanation.

Idiosyncratic risk and stock returns: a quantile regression approach

The relation between idiosyncratic risk and stock returns is currently a topic of debate in the academic literature. So far the evidence regarding the relation is mixed. This study aims to investigate the cross-sectional relation between idiosyncratic risk and stock returns in the Indian stock market employing quantile regressions. Using quantile regressions, this study demonstrates that idiosyncratic volatility and stock returns relation is quantile dependent. The relation between idiosyncratic volatility and stock returns is parabolic. The high idiosyncratic risk is associated with high (low) excess returns at the upper (lower) quantile of the conditional distribution. This partially explains the inconclusive evidence on the idiosyncratic volatility and the stock returns relation in the literature.

Idiosyncratic volatility and stock returns: Indian evidence

Abstract This paper examines the idiosyncratic volatility (IV) puzzle in the Indian stock market for the period 1999–2014. Univariate and bivariate sorting, as well as cross-section regressions, suggest a positive relation between idiosyncratic volatility and future stock returns. However, this relation is sensitive to the choices of portfolio weighting schemes, types of stocks (small, medium, and large), model specifications, and sample periods. Additionally, this study also contests the assumption that the relation between stock returns and predictor variables (including IV) remains same across different points of the conditional distribution and argues that an insignificant relation at the mean level may be significant at the extreme quantiles of the conditional distribution.

Board Independence and the Regulatory Framework for Appointing Independent Directors on the Boards of Listed Companies in India

Worldwide, the presence of independent directors on the board of listed companies is seen as an integral element of a company’s corporate governance process and has become a pre requisite for good governance. Consequently, in the recent years, governance reforms in India have increasingly pinned hope, as well as responsibility, on independent directors to achieve higher standards of governance in organizations.Unlike the Anglo Saxon world, where the key corporate governance challenge is disciplining the management and making it accountable to the distributed shareholders, the central challenge in corporate governance in India is that of disciplining the dominant shareholder(s) and protecting the interest of the minority shareholders. Therefore independent directors, in Indian business organizations, can become effective only when their appointment process is outside the influence of the dominant shareholders.This paper examines the current state of corporate boards among the S&P CNX 500 companies in India and reviews the impact of the changes that have been introduced in the recently amended Companies Act, 2013 and the revisions, by the Securities and Exchange Board of India (SEBI) to clause 49 of the Listing agreement dealing with corporate governance. While, with the recent changes, significant steps have been taken to strengthen the role of independent directors on the board of listed companies, the process for the appointment of independent directors needs to be further strengthened so as to truly improve the independence of the board in listed Indian companies.