TITLE

INVESTMENT PERFORMANCE OF COMMON STOCKS IN RELATION TO FUNDAMENTALS

AUTHOR(S)
WARNE, D.P.; CHOUDHARY, KAPIL
PUB. DATE
December 2012
SOURCE
Asia Pacific Journal of Research in Business Management;Dec2012, Vol. 3 Issue 12, p1
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
During the last five decades no subject in the investment analysis and selection has received more attention than the efficient market hypothesis. A growing amount of empirical evidence has been devoted to assessing the validity of this hypothesis as well as various efficient market anomalies {Basu (1977), Banz (1981), Reinganum (1980), Sehgal and Muneesh (2002)} across the world point that alternative investment strategies were able to generate excess abnormal return. This study tested the semi-strong efficient market hypothesis in Indian stock market by empirically examining the relationship between investment performance of equity securities and investment strategies based on their fundamentals i.e. market capitalization, P/E and B/M ratios. During the study period January 1997 to December 2007, the low market capitalization, low P/E ratio and high book to market ratio portfolios on average earned higher absolute rates of return than the high market capitalization, high P/E ratio and low book to market portfolios respectively. The study also found significant negative association between systematic risk and return of securities during the study period which is a violation of capital asset pricing model. In terms of Sharpe's reward to variability ratio, Treynor's reward to volatility ratio and Jensen's differential return performance measures low market capitalization, low P/E ratio and high B/M ratio investment strategies beat the high market capitalization, high P/E ratio and low B/M investment strategies respectively. Among the three investment strategies the low market capitalization investment strategy was superior to both P/E ratios and B/M ratios investment strategies in terms of absolute and risk adjusted rates of return.
ACCESSION #
92741813

 

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