Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Long‐term prior return patterns in stock and sector returns in India

Long‐term prior return patterns in stock and sector returns in India Purpose – The purpose of this paper is to analyze long‐term prior return patterns in stock returns for India. Design/methodology/approach – The methodology involves portfolio generation based on company characteristics and long‐term prior return (24‐60 months). The characteristic sorted portfolios are then regressed on risk factors using one factor (capital asset pricing model (CAPM)) and multi‐factor model (Fama‐French (FF) model and four factor model involving three FF factors and an additional sectoral momentum factor). Findings – After controlling for short‐term momentum (up to 12 months) as documented by Sehgal and Jain (2011), the authors observe that weak reversals emerge for the sample stocks. The risk model CAPM fails to account for these long‐run prior return patterns. FF three‐factor model is able to explain long‐term prior return patterns in stock returns with the exception of 36‐12‐12 strategy. The value factor plays an important role while the size factor does not explain cross‐section of average returns. Momentum patterns exist in long‐term sector returns, which are stronger for long‐term portfolio formation periods. Further, the authors construct sector factor and observe that prior returns patterns in stock returns are partially absorbed by this factor. Research limitations/implications – The findings are relevant for investment analysts and portfolio managers who are continuously tracking global markets, including India, in pursuit of extra normal returns. Originality/value – The study contributes to the asset pricing and behavioral literature from emerging markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Advances in Management Research Emerald Publishing

Long‐term prior return patterns in stock and sector returns in India

Loading next page...
 
/lp/emerald-publishing/long-term-prior-return-patterns-in-stock-and-sector-returns-in-india-00zBpTe1IR
Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
0972-7981
DOI
10.1108/JAMR-02-2012-0002
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to analyze long‐term prior return patterns in stock returns for India. Design/methodology/approach – The methodology involves portfolio generation based on company characteristics and long‐term prior return (24‐60 months). The characteristic sorted portfolios are then regressed on risk factors using one factor (capital asset pricing model (CAPM)) and multi‐factor model (Fama‐French (FF) model and four factor model involving three FF factors and an additional sectoral momentum factor). Findings – After controlling for short‐term momentum (up to 12 months) as documented by Sehgal and Jain (2011), the authors observe that weak reversals emerge for the sample stocks. The risk model CAPM fails to account for these long‐run prior return patterns. FF three‐factor model is able to explain long‐term prior return patterns in stock returns with the exception of 36‐12‐12 strategy. The value factor plays an important role while the size factor does not explain cross‐section of average returns. Momentum patterns exist in long‐term sector returns, which are stronger for long‐term portfolio formation periods. Further, the authors construct sector factor and observe that prior returns patterns in stock returns are partially absorbed by this factor. Research limitations/implications – The findings are relevant for investment analysts and portfolio managers who are continuously tracking global markets, including India, in pursuit of extra normal returns. Originality/value – The study contributes to the asset pricing and behavioral literature from emerging markets.

Journal

Journal of Advances in Management ResearchEmerald Publishing

Published: Jul 29, 2014

Keywords: India; Behavioural finance; CAPM; Fama‐French model; Trading strategies; Contrarian strategy; Momentum profits

References