Academic journal article Indian Journal of Industrial Relations

Size Effects in Indian Stock Market

Academic journal article Indian Journal of Industrial Relations

Size Effects in Indian Stock Market

Article excerpt

SIZE EFFECTS IN INDIAN STOCK MARKET by Vanita Tripathi, Serial Publications, New Delhi, 2008, pp. 194

Stock market is experiencing phenomenal expansion, its share in the GDP has witnessed growth and accounts for about 80 percent of GDP at present and has been extensively researched by scholars.

The present book, "Size Effect in Indian Stock Market" by Vanita Tripathi is an attempt to study whether size effect exits in the Indian market and also the causes of such size effect. The study is for a sample of 482 companies for the period 1990 to 2003 divided over three sub-periods-October 1990 to September 1994, October 1994- September 1998; and October 1998--September 2003. The book is spread over eight chapters and contains a detailed theoretical framework, literature review and results of the analysis. Empirical model with five firm specific variables namely, book to market ratio, institutional neglect, average daily trading volume, debt-equity ratio, and operating profit ratio has been used to analyse the size effect.

The study shows that a strong size effect existed in the Indian stock market during the entire period of study irrespective of the size measure used. The size premium is substantially high when market capitalization is used; the other measures of size used for analysis, namely, enterprise value, net fixed asset, net sales, total assets and net working capital, also had positive effects. The size effect was quite robust during the first and the third periods, and was weak during the second period. Size based investment strategy was found to provide economically feasible extra-normal returns and this "size effect" lead to investment strategy (buy small firm stocks and sell short large firm stock) of arbitrage which could be exploited by the investment analysts, mutual fund managers and individual investors. …

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