Study of Seasonality in the Indian Stock Market

Topics: Stock market, Stock exchange, Efficient-market hypothesis Pages: 60 (21592 words) Published: September 2, 2013
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FINANCE

TESTING SEASONALITY IN THE INDIAN
STOCK MARKET

A Project Report submitted in partial fulfillment of the requirements for the Degree of Master of Business Administration

Under the guidance of:
Dr. S.K. Tuteja

Submitted by:
Sachin Garg
F-045, MBA(FT) 2011-13

Faculty of Management Studies
University of Delhi
Delhi – 110007

CERTIFICATE

This is to certify that this project report titled “Testing Seasonality in the Indian Stock Market”, submitted in partial fulfilment of the requirements for the degree of Master of Business Administration, is based on my original research work under the guidance of Dr. S.K. Tuteja. The report has not been submitted elsewhere for any other purpose. All references used have been duly acknowledged.

****************************** *************************** Dr. S.K. Tuteja Sachin Garg
Project GuideF-045, MBA (FT) 2011-13
Faculty of Management StudiesFaculty of Management Studies University of DelhiUniversity of Delhi

ACKNOWLEDGEMENT

I am deeply indebted to my project guide Dr. S.K. Tuteja for being a constant source of encouragement throughout the course of this project. The project would not have been a possibility without his guidance and support at each stage of the project. His mentoring helped me to structure my thoughts well and conduct the research following appropriate techniques.

Sachin Garg
F-045, MBA (FT) 2011-13
Faculty of Management Studies
University of Delhi

CONTENTS
Exexutive Summary5
Chapter 1: Introduction6
1.1 Statement of the Problem10
1.2 Need for the Present Study10
1.3 Objectives of the study11
1.4 Hypotheses11
1.5 Methodology of the Study11
Sample Selection:11
Sources of Data:12
Period of the Study:12
Tools used for Analysis:12
1.6 Chapter Scheme13
Chapter 2: Literature review14
Chapter 3: Theoretical Background30
The BSE Sensex: A brief Introduction33
S&P CNX Nifty35
Weak form Efficiency36
Semi-strong form Efficiency37
Strong form Efficiency37
Criticism of EMH40
Chapter 4: Data Collection and Analysis45
Methodology45
ANOVA:47
ANCOVA:47
Data Analysis51
Chapter 5: Summary of Findings and Conclusion62
Summary of Findings62
Conclusion62
References:63

LIST OF TABLES AND FIGURES

S. No.| Description| Page|
Figure 1| Nifty Trend Line| 51|
Figure 2| Sensex Trend Line| 51|
Table 1| Descriptive Statistics| 52|
Table 2| AR(1) Model| 53|
Table 3| Results of ADF test| 54|
Table 4| Results of Equation (6) for Nifty| 54|
Table 5| Results of Equation (6) for Nifty corrected for autocorrelation and ARCH Effect| 55| Table 6| Results of Equation (6) for Sensex| 56|
Table 7| Results of Equation (6) for Sensex corrected for autocorrelation and ARCH Effect| 57| Table 8| Results of Equation (7) for Nifty| 58|
Table 9| Results of Equation (7) for Nifty corrected for autocorrelation and ARCH Effect| 59| Table 10| Results of Equation (7) for Sensex| 60|
Table 11| Results of Equation (7) for Sensex corrected for autocorrelation and ARCH Effect| 61|

EXECUTIVE SUMMARY

The presence of the Seasonal or Monthly Effect in stock returns has been reported in several developed and emerging stock markets. This study investigates the existence of seasonality in India’s stock market. The Efficient Market Hypothesis suggests that all securities are priced efficiently to fully reflect all the information intrinsic in the asset. The Seasonal Effects create higher or lower returns depending on the Time Series. They are called Anomalies because they cannot be explained by traditional asset pricing models. Examples of such patterns include e.g. the January Effect, the Day-of-the Week Effect and the Week of the Month Effect etc. Studies on the Seasonal Effects in the Indian Stock Market are limited. In an attempt to fill this gap, this study...

References: 3) Ariel, Robert A.(1987), “A Monthly Effect in Stock Returns,” Journal of Financial
Economics, Vol
4) Pandey I M (2002). "Is There Seasonality in the Sensex Monthly Returns," Working Paper, IIM Ahmedabad.
16) Agrawal, Anup, and Kishore Tandon (1994), “Anomalies or Illusions? Evidence from Stock Markets in Eighteen Countries,” Journal of International Money and Finance.
17) Ariel, Robert A.(1987), “A Monthly Effect in Stock Returns”
18) Ariel, Robert
19) Bodla, B.S.and Kiran Jindal (2006), “Seasonal Anomalies in Stock Returns: Evidence from India and the US
20) Brooks, Chris, and Gita Persand (2001), “Seasonality in Southeast Asian Stock Markets Some New Evidence on Day-of-the-Week Effects,”
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