Showing papers by "Indira Gandhi Institute of Development Research published in 1998"

The Indian IPO Market: Empirical Facts

Abstract: This article studies India's vibrant IPO market, via a data set of the 2056 IPOs which took place in the last 4.5 years. We study the overall underpricing, the delay between issue date and listing date, the time-series of monthly volume of IPO issues and average underpricing in a given month, the cross-section of underpricing across companies, the post-listing trading frequency, the long-run returns to new listings, and price discovery by the market shortly after first listing.

Affordability, Housing Demand and Housing Policy in Urban India:

Abstract: Designing housing policies and programmes requires a careful estimation of household affordability and demand for housing. The efficiency of housing subsidies would depend on price elasticities of housing demand. Different households have different perceptions of housing demand based on their economic and demographic factors. We estimate the demand function of housing for urban India using step econometric analysis. The first step estimates the hedonic price index for states and in the second step the demand for housing is estimated as a function of economic and household characteristics. The problem of multicollinearity is observed with the data. Ridge regressions are used to correct for multicollinearity and to obtain efficient estimates. The results indicate that the housing demand is inelastic with respect to income and price. The income elasticity is 0.75 while price elasticity is slightly less than — 1. A further analysis to estimate income and price elasticities for different income classes as well...

Barriers to the adoption of efficient electricity technologies: a case study of India

Abstract: This paper presents the results of the study on the barriers to the implementation of various electricity efficient technologies. To identify the barriers, field surveys were conducted in the residential, industrial and commercial sectors and professionals in India. The results indicate that lack of awareness, high initial cost, uncertainty of savings and non-availability were some of the major barriers. The barriers were then ranked according to their relative importance in the residential, industrial and commercial sectors. © 1998 John Wiley & Sons, Ltd.

Long-Run Growth Trends and Convergence Across Indian States

Abstract: This paper examines the growth performance of Indian States during 1970-94. We, first, propose a grouping of States according to differences in the availability of physical, social, and economic infrastructure, using principal components analysis. Then, combining principal components analysis and panel data estimation techniques, we assess the contribution of various infrastructure indicators to growth performance. The analysis tackles endogeneity issues in the provision of infrastructure by way of instrumental variables estimation for many of the infrastructure indicators. We do find evidence of conditional convergence across States. This does not rule out persistent income inequalities due to the dispersion of steady-state income levels. Such disparities are accounted for by differences, first, in the structure of production, second, in infrastructure endowments, and, third, in Statespecific fixed effects in the growth regression. Consequently, economic policy measures aiming at ... Ce document examine les performances de croissance des Etats Indiens sur la periode 1970-94. Nous procedons tout d’abord a un regroupement des Etats en fonction de leurs dotations en infrastructures physiques, economiques et sociales, sur la base d’une analyse en composantes principales. Nous combinons ensuite cette technique et l’econometrie des donnees de panel, dans le but d’evaluer la contribution des divers types d’infrastructures a la croissance. L’analyse tient compte de l’endogeneite de certains types d’infrastructures par l’utilisation de variables instrumentales. Nos resultats permettent de mettre en evidence la convergence conditionnelle des Etats Indiens. Ce constat n’exclut pas la persistance des inegalites de revenu par tete entre les Etats, du fait de l’existence de differences dans le niveau d’equilibre de ces revenus. Ces differences s’expliquent par celles premierement des structures de production, deuxiemement des dotations en infrastructures ...

Market Microstructure Considerations in Index Construction

Abstract: Illiquidity of securities in a market index generates noise in the index, increases the tracking error experienced by index funds and increases basis risk on an index futures market. This paper proposes methods where liquidity of alternative stocks explicitly influences index construction. These methods are particularly appropriate on markets where liquidity is accurately observed, such as the open electronic limit order book. The results obtained in applying these ideas in the construction of India's NSE-50 index are reported.

Socio-economic impact assessment of industrial projects in India

Abstract: Socio-economic impact assessment (SEIA) is conducted in advance to determine the socioeconomic consequences of industrial projects. The focus is on the project-affected people. All possible data is collected from census information and academic institutions. Personal interviews are also conducted with the local people and their administrative heads. The main phases of the project addressed are pre- construction, construction and operation. Issues addressed include compensation payment for the land, provision of employment, and alternative accommodation for the people affected. A decision on the acceptability of the project is taken after assessing the positive and negative socio-economic impacts.

Music as artisan tradition

Abstract: This paper attempts to explain three widely-held 'stylised facts' about the recent history of north Indian classical music. First, in the precolonial period, music and musicians were patronised by the courts. Second, from the early colonial period patronage declined and music tended to be commercialised. And third, in the process, accumulated knowledge and the quality of crafts manship decayed. In a received view in music scholarship, the transition from patronage to market involved an institutional change and a diffusion of teaching from 'family' to out siders. Decay is attributed to the consequent reluctance of masters to teach well. The paper disputes this view. It suggests that the decay can be seen as an imperfect adaptation by individuals to the changing economic environment, and that this is a more general phenomenon than music scholarship believes. On the other hand, in the instructional system, which was primarily apprenticeship, there was substantial continuity. In this interpretation, music history can be seen to belong to a larger history of north Indian craftsmanship. The paper illustrates this proposition by drawing on the experiences of other skilled urban crafts.

Real Consumption Levels and the Public Distribution System in India

Abstract: The policy of allocation of food grains under rationing has been very ad hoc in India with allocation being fixed on a 'historical basis'. This paper uses four sets of pooled equations for predicting stable levels of per capita consumption of rice and wheat in physical terms in rural and urban India. Food grain demand is estimated for all the States in India. The own-price, cross price and income elasticities of demand are estimated. The model shows a high level of predictive efficiency.

Components of the Wholesale Bid-Ask Spread and the Structure of Grain Markets: The Case of Rice in India

Abstract: In this paper we propose a new method of splitting up the Bid-Ask Spread of the wholesalers in grain markets into its three constituent components: the order processing costs, the adverse information cost and the inventory holding cost. It is argued that the extant methods of splitting up this spread are peculiar to stock markets and cannot be applied to grain markets. The proposed method is shown to be more general than the extant approaches. This new method is used to examine the constituents of the bid-ask spread in the grain markets of twelve major centers in India. The results are then linked to the production and consumption patterns in these centers.

Fairness and Equity via Concepts of Multi-Criteria Decision Analysis

Abstract: We briefly discuss principles of fairness and equity in order to incorporate them in a mathematical method for the allocation of benefits or costs (the output) in a distribution problem, on the basis of the effort, the strength or the needs (the input) of the respective parties. Usually, input and output are multi-dimensional, and proportionality seems to be the leading principle. Therefore we employ several algorithmic ideas of Multi- Criteria Decision Analysis in order to support the solution of distribution problems, in particular the ideas underlying the Multiplicative AHP which was designed to process ratio information. We extend the method in order to cover the principles of progressivity, priority, and parity as well. Two examples, (a) the establishment of the member state contributions to the European Union, and (b) the allocation of seats in the European Parliament to the member states, show that the proposed method produces contributions and allocations with a higher degree of fairness and equity than the actual solutions.

Heteroskedasticity Models on the BSE

Abstract: In this article, we study conditional heteroskedasticity in a market index on the Bombay Stock Exchange, from April 1979 to March 1995. We find strong evidence of heteroskedasticity in daily, weekly and monthly returns in the form of GARCH(1,1) models. We find there is seasonality in the volatility of monthly returns, and there is one regime shift in the level of unconditional variance of the data. Remarkably enough, after controlling for this, monthly returns appear homoskedastic. Both the regime shift and the seasonality have clear economic interpretations. The weekly and daily returns are still ARCH with strong evidence of the regime shift and of seasonality. Finally, we use our volatility models to test whether the market prices the observed heteroskedasticity using GARCH-in-mean models. We are unable to reject the null that higher risk is not priced. We offer qualitative arguments suggesting reasons for this behaviour and conjecture that this may change in the near future.

Wholesale Spreads and the Dynamics of Retail Price Volatility

Abstract: This paper proposes a general model of asymmetric price transmission at the retail level to examine the volatility of retail spreads in vertical markets, with endogenous overshooting of the wholesale spreads. The model is tested with Indian data and detects significant levels of asymmetry in price transmission. In addition it is found that endogenizing the instability at the wholesale level is significant in explaining volatilities of retail spreads.

Improved Methods for Obtaining Information from Distributed Dealer Markets

Abstract: Prices and liquidity on distributed dealer markets are known to market participants but not to external observers. Hence, the strategy of polling "n" respondents, coupled with data reduction using a robust location estimator, has been widely employed, especially in the context of cash-settled futures contracts. In this paper, we offer a market microstructure interpretation of the information obtained by polling, and propose improvements for many elements of the polling process. The choice of estimator in this context reflects a tradeoff between statistical efficiency and vulnerability to manipulation. We offer empirical evidence, based on polling in India's call money market, about this tradeoff. The results suggest that the adaptive trimmed mean (ATM) has advantages over the fixed trimming procedures presently used by futures exchanges.

The Impact of Speculation Upon Volatility and Market Efficiency: The Badla Experience on the Bse

Abstract: On 12 March 1994, SEBI imposed new norms on trading on the Bombay Stock Exchange, and the effective consequence of this has been an elimination of badla, a form of forward trading. Without badla, the role of speculative traders on the BSE is diminished. This paper sets out to measure the impact of this elimination of speculative trading upon volatility on the BSE. We explore, and criticise, a variety of different methods of arriving at a conclusion on this question, and present an estimation strategy which exploits the unique opportunity to view this episode as a natural experiment. Our examination of daily unsystematic risk, which takes the value of 3% in our sample on average, reveals that badla diminishes it by roughly 0.25 percentage points. Working with weekly returns data, badla seems to have no impact upon unsystematic risk. On the subject of market efficiency, we find that badla is slightly beneficial for short--horizon market efficiency: the non-forecastability of daily returns of A companies has worsened in the year following 12 March 1994. This effect is most pronounced in a short horizon; the degree of forecastability of weekly returns is essentially unchanged in the year after 12 March 1994. Obtaining from mail server: send email to mserver@cmie.ernet.in with these two lines in the body: get sigfi badla1.uue get sigfi badla2.uue The file badla1.uue uudecodes into piece.aa The file badla2.uue uudecodes into piece.ab Concatenate these two to get the file paper.ps.gz

Dynamics of Wholesale Bid-Ask Spreads in Vertical Markets

Abstract: This paper investigates the short run efficiency of wholesale markets within the context of vertical markets. We propose a partial adjustment model to examine the dynamics of the wholesale bid-ask spread and determine whether this has any impact on hoarding at the wholesale level. The dynamics of Bid-Ask spread is then endogenised in a general model of price transmission at the retail level to determine the impact of such dynamics on a) price transmission and b) the extent of hoarding. Finally we test this generalized model against the extant models of price transmission and show that the generalization is more appropriate.

Statistical causality and strategic behavior in industrial markets

Abstract: This paper proposes a simple test of the leader-follower model of strategic behavior. This test relates the temporal notions of leadership central to such models to the empirical methods of statistical causality. This test is performed using data from the US softwood plywood industry of the last three decades. Others have productively explored the spatial pricing practices of this industry by applying a leader-follower model. Similarly, we find that a leader-follower model explains well the temporal relations between key strategic variables (prices) in the industry. We conclude that the leader-follower model imposes meaningful restrictions on observable time-series data and that statistical causality is a useful method for testing these restrictions.

Structure and Price Efficiency of an Emerging Market

Abstract: This paper examines market strudurc and efficiency of price transmittals in the two national stock exchanges of India: Bombay Stock Exchange and National Stock Exchange. Price movements in a large number of important stocks in both markets arc considered The framework used is the Johansen-Jusclius multtvariatc cointcgration technique. It is discovered that price movements within cadi market are cointcgratcd Short run ECM annhsis shows that no stodc in any market is exogenous thus indicating that there is considerable feedback in short run price movements from each stock. Some short run price movements arc stabilizing. The Bombay Stock Exchange and National Stock Exchange appear to be reasonably efficient markets.

Price transmission in vertical markets: a comment and an extension

Abstract: This paper examines the impact of dynamic information acquisition by retailers, on the degree of asymmetric price transmission in vertical markets. We propose a generalization of the extant models of asymmetric price transmission, by endogenising the process of dynamic information acquisition. It is found that, this has a significant impact on the degree of asymmetry in the process of price transmission. A test of the functional form by using the restricted version of the model rejects the restricted model.

The Indian IPO Market: Suggestions for Institutional Arrangements

Abstract: In the companion paper on empirical regularities of India's IPO market, we found a high degree of underpricing IPO underpricing is not healthy -- it involves penalizing unlisted companies with a high cost of capital; this is unlikely to be a criterion along which the efficiency of resource allocation is maximized In this paper, we propose four policy alternatives, which are primarily (though not exclusively) aimed at decreasing the extent of IPO underpricing: 1 We propose improvements to the quality of information disclosure at the time of a public issue 2 We propose giving firms greater freedom to choose the offer price close to the issue date 3 We propose an auction-based strategy for the primary market 4 We offer a way to legitimize the gray market and bring it within the fold of the institutional framework governing financial markets of the country