Showing papers by "M. Thenmozhi published in 2016"

Forecasting stock returns based on information transmission across global markets using support vector machines

Abstract: This paper provides evidence that forecasts based on global stock returns transmission yield better returns in day trading, for both developed and emerging stock markets. The study investigates the performance of global stock market price transmission information in forecasting stock prices using support vector regression for six global markets--USA (Dow Jones, S&P500), UK (FTSE-100), India (NSE), Singapore (SGX), Hong Kong (Hang Seng) and China (Shanghai Stock Exchange) over the period 1999---2011. The empirical analysis shows that models with other global market price information outperform forecast models based merely on auto-regressive past lags and technical indicators. Shanghai stock index movement was predicted best by Hang Seng Index opening price (57.69), Hang Seng Index by previous day's S&P500 closing price (54.34), FTSE by previous day's S&P500 closing price (57.94), Straits Times Index by previous day's Dow Jones closing price (54.44), Nifty by HSI opening price (60), S&P500 by STI closing price (55.31) and DJIA by HSI opening price (55.22), and Nifty was found to be the most predictable stock index. Trading using global cues-based forecast model generates greater returns than other models in all the markets. The study provides evidence that stock markets across the globe are integrated and the information on price transmission across markets, including emerging markets, can induce better returns in day trading.

What drives fund flows to index ETFs and mutual funds? A panel analysis of funds in India

Abstract: This paper examines the performance and determinants of fund flows to index exchange traded funds (ETFs) and index mutual funds in India that track either S&P BSE SENSEX or CNX Nifty. We empirically show that index mutual funds track their underlying better than index ETFs. We further contribute to the literature using a panel regression analysis of funds and find that ETFs with lower expense ratio and large asset base attract more funds. Age of fund is not an important factor driving fund flows to ETFs, but it is the newer index mutual funds that attract more funds than the existing ones. The study provides evidence that investors neither take cognizance of the past performance nor the past returns of their benchmark returns of index mutual funds and ETFs. The study also finds that expense ratio is a major factor that attracts investments and fund managers would do well to reduce the expense ratio and the factors driving fund flows to index mutual funds vary depending on the underlying benchmark index. The findings of the study have policy implications, as they clearly identify the distinctive factors that drive fund flows to ETFs and index mutual funds.

Co-movement of oil price, exchange rate and stock index of major oil importing countries: A wavelet coherence approach

Abstract: The study examines the co-movement between oil price and macroeconomic indicators such as exchange rate and stock indices of major oil importing countries. We differ from previous studies by examining the macroeconomic dynamics of major oil-importing countries during all economic cycles across different frequencies, using wavelet coherence analysis. We use nominal price rather than real price to make the results more meaningful for traders and institutional investors. Our analysis is based on 3012 observations covering the period 2003-14 for fifteen major oil importing countries. Wavelet coherence analysis indicates a high coherence between oil price and macroeconomic indicators across all the countries during the financial crisis. The nominal exchange rates tend to have a negative relationship with benchmark oil prices except Japan in the long run and South Korea in the medium run. Stock indices tend to have a positive relationship with benchmark oil prices in both long and medium run. S&P is leading the oil price, whereas SSE50, Nikkei 225, NIFTY, KOPSI, DAX, CAC, IBEX, FTSSI, FTSEMIB, AEX, TWSE, XU 100, LQ45 and BEL 20 are lagging the oil price in the long run. In the medium term, except for NIFTY, oil price is leading the stock market index. Overall, the results indicate that the oil price and stock indices of the major oil-importing countries are correlated in the long and medium term, but not in the short term. The lead–lag relationship between oil price and macroeconomic indicators are observed to change across frequency and time. While exchange rate offers diversification benefits, stock market indices provide no diversification avenues, since the pattern of co-movement of stock market indices and oil prices are similar across all oil importing countries. The results have implications for individual traders and institutional investors while designing their portfolio for short, medium and long term time horizons.

Linkages Among Corporate Governance, Intellectual Capital Efficiency and Firm Performance: An Empirical Analysis from Emerging Market

Abstract: In this study an attempt has been made to create a link between corporate governance, intellectual capital efficiency and firm performance. The sample is BSE SENSEX firms from the year 2013 to 2015. Data has been collected from PROWESS database of Centre for Monitoring Indian Economy (CMIE). Intellectual capital efficiency has been estimated using VAIC (value added intellectual capital) methodology. Previous research suggests measuring intellectual capital through the Market to book ratio and Tobin Q ratio. In the current study an attempt has been made to measure the intellectual capital efficiency through VAIC method which derives interesting insights. The results show that corporate governance affects a firm’s intellectual capital efficiency i.e. if a firm has good corporate governance system in place, it will attract efficient human capital for the firm and in turn a firm’s profitability will increase over a period of time. Among the corporate governance variables, BSH (block shareholding), CEO duality (if the CEO and the chairman of the firm) and board size seem to have a significant impact on a firm’s operational and financial performance measured by return on assets and return on equity respectively. The results pertaining to the effect of intellectual capital efficiency on firm performance show that capital employed efficiency (CEE) and human capital efficiency (HCE) have a significant impact on a firm’s return on equity. The study supports stewardship theory of corporate governance.

Product Diversification Deciphered

Abstract: Purpose: Since researchers from different streams have used varied methodologies, that are complex to measure a firm’s level of corporate diversification, the primary purpose of this paper is to provide practicing managers a range of alternate measures of diversification that can be computed with ease, from data that are available in their day-to-day management information systems. Design/ methodology/ approach: Using a sample of large companies listed in the Bombay stock exchange, unrelated diversification index based on entropy measure is calculated. Five, alternative measures of diversification are developed from the same data set. Using hierarchical regression, this study explores as to which of the product diversification measures developed, explains the unrelated diversification measure calculated based on the Entropy measure. Findings: The study provides the practicing managers three alternate measures of diversification, the proportion of the largest two-digit industry sales to total firm sales (DIVH2D), the number of products a firm produces (DIVNP) and the proportion of the ‘number of two-digit industry codes to the number of four-digit industry code’ (DIV2B4). These help managers gauge their firm’s extent of unrelated diversification. Research limitations/ implications: The alternate measures of diversification help the managers’ benchmark their level of unrelated diversity, without having to go through the pain of calculating diversity through traditional methodologies that are complex and cumbersome.