Yogesh Chauhan

Institutional Investors and Stock Liquidity: Evidence from Indian Stock Market:

The main aim of this article is to examine the relation between institutional ownership and stock liquidity. Using a large sample of Indian firm data for the period 2001–2012, we estimate two liquidity measures, Amihud illiquidity and HL-spread. We find that institutional ownership is negatively related to the stock liquidity. We also find that the negative institutional ownership–stock liquidity relation is mostly driven by foreign institutional investors (FIIs) and Bank ownership. Conversely, retail ownership is positively related to the stock liquidity. Importantly, we find that institutional investors are more likely to hold liquid stocks. These findings are consistent with the hypothesis that the level of institutional ownership proxies for informed investors, while they trade liquid stock to reduce price impact cost.

Information Content of Implicit Spot Prices Embedded in Single Stock Future Prices: Evidence from Indian Market

This study examines the information content of pricing error, measured by the difference between the implied price computed using the cost of carry model and the spot price of Single Stock Futures (SSFs), traded on National Stock Exchange (NSE), India. The returns of portfolios, based on ranking of such pricing errors, are investigated. The consistency of results is verified by controlling for established risk factors, that is, market, size, value and momentum premium, and idiosyncratic factors such as firm’s liquidity and size. Our study reveals that the pricing error is a priced risk factor that contains incremental information about stock returns of day t, and not beyond. We conclude that implied spot prices from stock futures market are useful for traders to profit in the spot market. JEL Classification: G120, G130

Market Imperfections and Regulatory Intervention: The Case of Insider Trading Regulation in the Indian Stock

This paper’s aim is two-fold. First, to investigate whether regulatory intervention, to improve insider trading transparency, leads to higher information production. Second, to understand how market imperfections can distort uniform impact expected out of regulatory intervention. We use Indian stock market regulator-SEBI’s regulatory intervention on insider trading as a natural experiment for our investigation. Using 22,571 insider trades, that occurred between 2007 to 2011, we report the following main findings: (1) Our estimates show that, Firm Officers, on average, made around Rs.4 profit per share more than ordinary shareholders for every round trip transaction during pre-regulatory intervention period. Regulatory intervention reduces such profiteering activity. (2) Regulatory intervention significantly improved information production associated with insider trades. (3) Market imperfections in the form of variations in firm organisation structure and competition environment, can explain lack of uniform impact due to regulatory intervention. Our results lead us to conclude that regulatory intervention is generally effective (Brochet, 2010), however the efficacy cannot be uniform unless regulatory intervention goes hand-in-hand with regulatory investment and coordination aimed at addressing market imperfections (Fernandes and Ferreira, 2008).