Size, Value Effects and the Explanatory Power of Pricing Models: Evidence from BSE listed Indian Industries

Title

Size, Value Effects and the Explanatory Power of Pricing Models: Evidence from BSE listed Indian Industries

Creator

Sharma B.; Srikanth P.; Suresha B.

Description

The firm size and value anomalies are the global-level counterpart for explaining the cross-sectional variations of equity returns. This paper aims to examine the size, value effects and explanatory power of three well-known pricing models - CAPM, three-and five-factor- across and within 15 Indian industries. The study considers all firms listed on Indian largest stock exchange, BSE (Bombay stock exchange), between 1999-2021 by developing portfolios using firm size/value, size/investment and size/profitability risk characteristics. The study employs both univariate and multivariate methods, including time series, GRS statistics, and cross-sectional models within and across industries portfolios. Results indicated that size and value effects exist in almost all industries, presenting that size and value anomalies are the most prominent determinants for industry-level equity returns. In addition, the profitability and investment effects were also investigated; however, the results are mixed from industry to industry. In the case of the explanatory power of pricing models, the five-factor performs much better within and across industry portfolios than other pricing models; however, the models' effectiveness varies by industry. We also reported that investors who seek to allocate funds within and across industries tend to be expected reasonably stable returns and conceivably predictable; the findings of this study contribute to the existing literature on asset pricing and portfolio management in emerging markets. The Author(s) 2022.

Source

Scientific Papers of the University of Pardubice, Series D: Faculty of Economics and Administration, Vol-30, No. 2

Date

2022-01-01

Publisher

University of Pardubice

Subject

Asset Pricing; Cross-sectional Models; India; Portfolio Management; Stock Market; Time-series Models

Coverage

Sharma B., Christ University, School of Business and Management, India; Srikanth P., Christ University, School of Business and Management, India; Suresha B., Christ University, School of Business and Management, India

Rights

All Open Access; Gold Open Access

Relation

ISSN: 1211555X

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.46585/sp30021490

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