Showing papers by "M. Thenmozhi published in 2013"

Factors Influencing Abnormal Returns around Bonus and Rights Issue Announcement

Abstract: IntroductionThe changes in abnormal returns of a security around event announcement may be due to event-induced, firm-specific or event-related factors. There are a host of studies that have looked into factors that influence stock returns for seasoned issue announcements (Asquith and Mullins, 1986; Mikkelson and Partch, 1986; and Kalay and Shimrat, 1987). However, Barclay et al. (1990) have found that there exists a relationship between announcement effect on abnormal returns and the issuing firms' information asymmetry, profitability, growth, and the issue characteristics. An analysis of factors affecting abnormal returns around the announcement of new equity issue is important for the following reasons: (1) unrecorded goodwill may be reflected in the stock price which is not captured by the event itself; (2) managers have superior information about investment projects compared to investors; and (3) the issuing firm's current financial structure and the impact of new equity issued on its financial situation are also important factors considered by investors in their valuation of equity offerings. Though empirical work has focused on examining the significance of the change in abnormal returns, studies exploring the extent of influence of firm-specific or event-related factors on abnormal returns are limited.The literature shows that issue size has a mixed impact on the firm's abnormal returns (Hess and Bhagat, 1986; Abhayankar and Dunning, 1999; Marsden, 2000; Bigelli, 2002; Kato and Tsay, 2002; Tan et al., 2002; and Wu et al., 2005). A positive relationship between pre- market condition and a firm's abnormal returns has been documented by Choe et al. (1993), Tsangarakis (1996) and Tan et al. (2002). Different firm characteristics have a significant effect on the firm's abnormal returns (Balachandran et al, 2005).Measurement of Variables Affecting Abnormal ReturnsIn this study, the effects of factors influencing cumulative abnormal returns have been examined for two time periods: the first one being around one day of announcement (t_j to t+1), and the second one being around 20 days of announcement (t_20 to t 20).In the case of equity issue announcement, the selection of the factors affecting abnormal returns of a firm is primarily based on the previous studies in the context of both developed and developing countries. A review of literature shows that there are several firm-specific, issue-specific, industry-specific and country-specific factors that influence stock returns of a firm apart from the announcement of an issue alone. The characteristics of firms determine the degree of fluctuation in the abnormal returns (Tan et al, 2002; Balachandran et al, 2005; and Elayan et al, 2007), and include parameters such as firm size, issue size, dividend yield, research and development, intangible assets value, market capitalization, market-to-book ratio, capital intensity, total liabilities, return on equity and leverage. The following variables have been used in the study: Issue Size (ISSUE), Pre-Market Condition (PRECAR), Industry Type (IT), Value of Collateral Assets (VCA), Return on Equity (ROE), Price-Earnings (PE) ratio, Market Capitalization (MCAP), Operating Leverage (OPLEV), Debt-Equity (DE) ratio and Volatility of Stock Returns (VSR).Issue-Related VariablesThe present study uses bonus issue ratio calculated as the number of shares allotted against the current number of shares held by investors. In the case of rights issue, the number of shares issued scaled by the number of shares outstanding has been taken as the issue-related variables. The bonus issue size or the rights issue ratio has not been considered to avoid duplication of data in the model.Market-Related FactorsInvestors start bidding up the prices prior to the announcement date, if they anticipate revelation of information about the issue of bonus and rights shares. If the information is already anticipated in the market, then the stock price reaction to the announcement will be lower. …

Evidence on Changes in Time Varying Volatility around Bonus and Rights Issue Announcements

Abstract: Purpose – The purpose of this paper is to examine the short‐term and long‐term stock price volatility changes around bonus and rights issue announcements, using historical volatility estimation and time varying volatility approach.Design/methodology/approach – Changes in volatility around bonus and rights issues have been examined using the following methodologies. First, to capture historical volatility, change in standard deviation for 20 days and 100 days before and after announcement have been examined. Second, change in time varying volatility and unconditional volatility is examined using GARCH (1, 1) model.Findings – The results indicate that the historical volatility has increased after bonus and rights issue announcement. The volatility persistence and unconditional variance have increased after the bonus and rights issue announcements. This evidence, extendable to any other type of issue announcement, is consistent with theories stating that volatility increases after the seasoned capital issue ...

India Volatility Index (India VIX) and Risk Management in the Indian Stock Market

Abstract: This study examines the asymmetric relationship between the India Volatility Index (India VIX) 3 and stock market returns, and demonstrates that Nifty returns are negatively related to the changes in the India VIX levels; in the case of high upward movements in the market, the returns on the two indices tend to move independently. When the market takes a sharp downward turn, the relationship is not as significant for higher quantiles. This property of the India VIX makes it ideal as a risk management tool whereby derivative products based on the volatility index can be used for portfolio insurance against bad declines. We also find that the India VIX captures stock market volatility better than traditional measures of volatility, including the ARCH/GARCH class of models. Finally, we test whether changes in the India VIX can be used as a signal for switching portfolios. Our analysis of timing strategy based on changes in the India VIX exhibits that switching to large-cap (mid-cap) portfolios when the India volatility index increases (decreases) by a certain percentage point can be useful in maintaining positive returns on a portfolio. 1 Professor of Finance, Department of Management Studies, Indian Institute of Technology Madras, Chennai, India. Email: mtm@iitm.ac.in 2 Postdoctoral Fellow in Finance, Department of Management Studies, Indian Institute of Technology Madras, Chennai, India. Email: abhijeet.chandra@yahoo.com The views expressed in the paper are those of the author and do not necessarily reflect the opinion of the National Stock Exchange of India Ltd. 3 ―VIX‖ is a trademark of Chicago Board Options Exchange, Incorporated ("CBOE") and Standard & Poor’s has granted a license to NSE, with permission from CBOE, to use such mark in the name of the India VIX and for purposes relating to the India VIX.

Performance and Price Discovery of Gold Exchange Traded Funds

Abstract: In this study, we examine the performance and pricing behaviour of US listed and Indian gold ETFs. We find that Pricing Deviation is significant for both US listed and Indian gold ETFs. However, the Tracking Error is not significant for both the US listed and Indian gold ETFs. There is ample evidence to suggest that unidirectional causality exists between US listed gold ETFs and spot prices of gold. Whereas, the analysis shows that bidirectional causality exists between Indian gold ETFs and MCX spot prices of gold. The Impulse Response and variance decomposition analysis shows contrasting results for both US listed and Indian gold ETFs.

Investor Sentiment, Volatility and Stock Return Comovements

Abstract: We study the stock return comovements from two different perspectives, one being trading behaviour-induced return comovements and the other volatility-induced return comovements Following Baker and Wurglur (2006), we construct an investor sentiment index and examine whether it has relationship with return comovements induced by investor's trading behaviour and market volatility We find that a correlated trading behaviour along with investor sentiment significantly determines excess stock returns Also stocks with high volatility exhibit higher return comovement properties compared to low volatilie stocks In a cross-sectional framework, we find higher level of market uncertainty characterized by more biased investor sentiment induces highly correlated trading behaviour and thereby generates stronger correlated returns, causing stronger return comovements The findings from our study imply that irrational and idiosyncratic sentiment of market participants, particularly which of investors, causes significant return comovement

Contagion Effect Among Crude Oil and Food Prices in India

Abstract: This paper examines the contagion effect among crude oil and wheat, soybean and maize spot prices in India using the daily prices data for 2010-2013. Using correlation, we find comovement among spot as well as among futures prices of commodities. The causality is present among spot prices of commodities. There is unidirectional contagion effect running from crude oil to soybean spot and, from maize spot and soybean spot to wheat spot. In the recent period, we find the movement of contagion effect from crude oil prices to food prices. The VAR model shows that commodities spot prices are influenced by its past prices and futures prices and also by the spot and futures prices of other commodities. The contagion effect among the crude oil and food prices as well as within the food market has been witnessed among wheat, soybean and maize spot prices even after controlling for futures prices in the Indian commodities market.

Impact of perceived organisational support on job performance among healthcare professionals

Abstract: The study examined the impact of perceived organisational support on in-role performance and extra performance towards supervisors, co-workers and patients. A cross-sectional survey was conducted among medical officers and staff nurses working in primary health centres of Tamilnadu. From the results, it is found that perceived organisational support showed a positive impact of on in-role performance and extra role performance. It is found the extra role performance towards patients is greater compared to other job performance measures. The results of the study emphasise the public health department has to identify and reward substantial performers and review welfare policies that are perceived to be unattractive by healthcare professionals.