ANOMALOUS MARKET MOVEMENTS AND THE ROLLING SETTLEMENT: EMPIRICAL EVIDENCE FROM INDIAN STOCK MARKETS Ramesh Chander and Kiran Mehta Investors and analysts are unable to predict stock price movements consistently so as to beat the market in informationally efficient markets. Still, concerted efforts are being made to earn abnormal returns discerning some anomalous pattern in the stock price movements. Also, the study of some structural changes in the market leading to, or removing some anomalous pattern in the stock prices, are of interest to investors and analysts. The present study was conceptualised to scrutinise whether anomalous patterns yield abnormal return consistently for any specific day of the week even after introduction of the compulsory rolling settlement on Indian bourses. Three market series viz., BSE Sensex, S and P CNX Nifty and S and P CNX 500 were observed on daily basis for ten years viz., i) Pre-rolling settlement period, April 1997 - December, 2001 and ii) Post-rolling settlement period, January 2002 - March 2007 to discern evidences in this regard. Contrary to developed capital markets, the results reported in this study documented lowest (significant) Friday returns in the pre-rolling settlement period as credible evidence for the weekend effect. The findings recorded for post-rolling settlement period were in harmony with those obtained elsewhere in the sense that Friday returns were highest and those on Monday were the lowest. It implied that arbitrage opportunities existed (for different trade settlement cycle on two exchanges, BSE and NSE) have disappeared consequent to the rolling settlement. On the whole, the study noted stock markets moved more rationally and anomalous return pattern noticed earlier could not sustain, in the post rolling settlement period. Key Words: Rolling Settlement, Anomalous Market Movements, Day-of-the-week Effect, Efficient Market Theory, Stock Returns, Investment Strategy, Arbitrage Opportunities. INTRODUCTION I N recent times researchers have found strong empirical evidences to support efficient market hypothesis (EMH) which states that no investor, reacting to new information disclosure, can earn abnormal return consistently. The market mechanism for new information adjustment is presumed to be so swift to maintain independent and random movement in stock prices. Studies (Fama (1965), Fama and French (1998), Barua and Raghunathan (1987), Belgaumi (1995), Chaudhary (1991), Rao and Mukherjee (1971)) have quite extensively analysed and documented evidence in support of this randomness in stock prices. However, in spite of strong evidences in support of efficient market mechanism, there are instances when the stock price movement enables the investors to earn abnormal returns discerning some pattern in market movements. This kind of anomalous market movements, which seems to be incongruous to the hypothesis of EMH, has also been widely studied. These studies have identified certain parameters as P/E ratios, dividend yield, size, seasonality, etc. to empower investor with some predictive power to locate patterns in the stock price movements and thus to harvest extra returns. It is based on the premise that market returns follow a cyclic pattern to violate efficiency logic and that monitoring past market movements; market participants can earn extraordinary returns regularly.
Transcript
ANOMALOUS MARKET MOVEMENTS AND THEROLLING SETTLEMENT: EMPIRICAL EVIDENCE
FROM INDIAN STOCK MARKETS
Ramesh Chander and Kiran Mehta
Investors and analysts are unable to predict stock price movements consistently so as to beat the market ininformationally efficient markets. Still, concerted efforts are being made to earn abnormal returns discerningsome anomalous pattern in the stock price movements. Also, the study of some structural changes in themarket leading to, or removing some anomalous pattern in the stock prices, are of interest to investors andanalysts. The present study was conceptualised to scrutinise whether anomalous patterns yield abnormalreturn consistently for any specific day of the week even after introduction of the compulsory rolling settlementon Indian bourses. Three market series viz., BSE Sensex, S and P CNX Nifty and S and P CNX 500 wereobserved on daily basis for ten years viz., i) Pre-rolling settlement period, April 1997 - December, 2001 andii) Post-rolling settlement period, January 2002 - March 2007 to discern evidences in this regard.
Contrary to developed capital markets, the results reported in this study documented lowest (significant)Friday returns in the pre-rolling settlement period as credible evidence for the weekend effect. The findingsrecorded for post-rolling settlement period were in harmony with those obtained elsewhere in the sense thatFriday returns were highest and those on Monday were the lowest. It implied that arbitrage opportunitiesexisted (for different trade settlement cycle on two exchanges, BSE and NSE) have disappeared consequentto the rolling settlement. On the whole, the study noted stock markets moved more rationally and anomalousreturn pattern noticed earlier could not sustain, in the post rolling settlement period.
IN recent times researchers have found strongempirical evidences to support efficient markethypothesis (EMH) which states that no investor,
reacting to new information disclosure, can earnabnormal return consistently. The market mechanism fornew information adjustment is presumed to be so swiftto maintain independent and random movement in stockprices. Studies (Fama (1965), Fama and French (1998),Barua and Raghunathan (1987), Belgaumi (1995),Chaudhary (1991), Rao and Mukherjee (1971)) havequite extensively analysed and documented evidence insupport of this randomness in stock prices. However, inspite of strong evidences in support of efficient market
mechanism, there are instances when the stock pricemovement enables the investors to earn abnormal returnsdiscerning some pattern in market movements. This kindof anomalous market movements, which seems to beincongruous to the hypothesis of EMH, has also beenwidely studied. These studies have identified certainparameters as P/E ratios, dividend yield, size, seasonality,etc. to empower investor with some predictive power tolocate patterns in the stock price movements and thus toharvest extra returns. It is based on the premise thatmarket returns follow a cyclic pattern to violate efficiencylogic and that monitoring past market movements;market participants can earn extraordinary returnsregularly.
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32 ● Chander and Mehta
Before introduction of rolling settlement, stockprices in India were continuously hyped for longer boutsof trade settlement periodicity. And lack of settlementperiod congruency across the premier exchanges (theBSE and the NSE) had tempted the market participantsto switch over their trade positions from one exchangeto the other on settlement days and this had facilitatedskewed return generation for week days (particularly thesettlement and the following day). The introduction ofrolling settlement was expected to mitigate thisanomalous pattern and the present study was primarilyconceptualised, among others, to document evidence forany drift in the pattern of daily trading returns. Thedocumented literature in developed capital markets inthis regard indicate consistent anomalous stock returnpattern across the trading days. Under such a backdrop,this research paper intends to empirically scrutinise thisphenomenon in the Indian stock markets in view ofrolling settlement.
Review of Literature
There is abundance in the investment literature to makeinvestors skeptical of the efficient market theory andto defy its cerebral supremacy. Available literature onthe subject points to the negative (lowest) Mondayreturns and the highest positive returns on Friday.Laying the foundation of contraian’s thinking, Fields(1931) was the first to document evidence for Mondayeffect in the US stock market. Jaffe and Westerfield(1985) further investigated the weekend effect in fourmarkets i.e., Australian, Canadian, Japanese and UKand documented existence of day-of-the week effectin Japanese and Australian markets and documentedsimilar evidence for these markets. Evidence on thenegative (lowest) Monday returns in the internationalmarkets as compared to other days of the week wasalso confirmed by Haris (1986). Cross (1973) notedthe day-of-the-weak effect by tracing higher meanreturns on Friday compared to those on the Monday.These findings arefurther revalidated by French (1980)and Wickremasinghe (2007). Mehdian and Perry (2001)has also noticed Monday effect in large cap stocks. Notonly for stock markets, Dyl and Maberly (1986), Gayand Kim (1987) and Flannery and Protopapadakis(1988) have noted similar evidences even for US T-bills, and that for Commodity and Future markets too.Board and Sutcliffe (1988), however, documentedevidence to support weekend effect in UK but reportedthe withdrawal of anomalous pattern of stock returnsover a period of time.
In India, similar kind of anomalous pattern in thestock market returns was studied by Chaudhary (1991)and found evidence in support of the highest Fridayreturns and the lowest (negative) Monday returns. Theunequal distribution of returns on the Indian bourses wasalso noticed by Agarwal and Tandon (1994) and itnoticed the variability in inter dependence of stockreturns on different trading days. Poshakwale (1996)documented non-randomness in the return series in Indiafor different weekdays. Anshuman and Goswami (1997)examined the day-of-the-week effect on the BSE andfound evidence to support excess positive Friday returns.The same was confirmed by Arumugam (1997) with nosignificant negative returns for Mondays except in thebear phase. In recent studies, Karmakar and Chakarborty(2000) and Gupta (2006) have documented similarevidences for day-of-the-week effect.
In a study of its unique kind, Lakonishok and Levi(1982) documented impact of trading settlement systemon the weekend effect. In India, seminal study in thisregard was conducted by Amanulla and Thiripalraju(2001) for the impact of trade settlement on theanomalous pattern of stock returns and found evidenceto support weekend effect during the period of ban oncarry-forward (Badla) transactions. It also noticedconsistent positive returns on Wednesday - aphenomenon never been reported elsewhere. In a morerecent study, Nath and Dalvi (2005) documented theimpact of introduction of rolling settlement in India onthe daily returns and noted that Mondays and Fridayswere critically significant trading days. It noted that evenafter compulsory rolling settlement Friday continues tobe the most significant trading day of the week for returnpropagation.
Thus, a number of studies have documentedevidence in support of the anomalous pattern of dailyreturns in the stock market across the globe. Availableliterature in the context indicates considerably higherreturns on Friday and the lowest on Monday comparedto other weekdays. This return differentiation wasnoticeably visible during bearish phase of the market incontrast to the bull phase wherein such differentiationweakens considerably. Studies have even questioned thesustainability of day-of-the-effect in the long run to keepacademic debate and the curiosity of market participantslive and interactive on the subject. As noticed earlier,there is a considerable dearth of literature on the patternof anomalous return behavior aftermath the introductionof the rolling settlement on the bourses. This study makesan attempt to fill this gap to revisit sustainability of the
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Anomalous Market Movements and the Rolling Settlement: Empirical Evidence from Indian Stock Markets ● 33
Pre-rolling settlement period, April 1997 - December2001 and ii) Post-rolling settlement period, January 2002- March 2007 that is quite comprehensive to makegeneralisations. The results reported are based on theProwess database maintained by the Center forMonitoring Indian Economy (CMIE), Mumbai. In thisway, the study encompasses 2478 observationscomprising of 1229 for the pre-rolling settlement periodand 1249 observations for the post rolling settlementperiod. It is worth mentioning here that the return onTuesday is based on closing value of a given marketseries (I) on Tuesday and its closing value on Monday.But Friday being the last trading day of the week so returnon Monday is based on closing value of market seriesunder consideration on Monday and its correspondingvalue on Friday. Similarly, in case of public holiday(s)the return on market series (indices) were computed onthe basis of its closing value on the day before publicholiday(s) and its closing value on the day after publicholiday(s).
The return of a given market series on a given day isobtained in the manner given below:
RI = ln (It / It-1)
(Wherein, RI is daily return on the market series (I),ln is natural log of underlying market series (I), It isclosing value of a given index (I) on a specific tradingday (t), and It-1 is closing value of the given Index (I) onpreceding trading day (t-1)).
Descriptive statistics as mean (simple arithmeticaverage), standard deviation, skewness and kurtosis(market series) were extensively referred to discern day-of-the-week effect was obtained in the SoftwarePackages for Social Sciences (SPSS). For obviousreasons, Kruskal-Wallis H-statistics is used in the studyto examine statistical significance of difference in meanreturns for each trading day of the week. This non-parametric test statistics is particularly preferred toexamine validity of null hypotheses in view ofpresumably random behavior of underlying marketseries. The distribution pattern of sample returns(Anexure-1) indicate varied spikes around central valuefor each market series on different trading days thatpoints to some non-Gaussian distribution market serieswhich makes a good case for the use of Kruskal-Wallistest statistics in this study not withstanding the largernumber of random observations in the series. Studies inthe investment literature world over have alsodocumented extensive evidence to support random walkto deny serial interdependence of stock returns to further
anomalous return pattern to see whether profitabletrading strategies consistently could be devised in thelong run.
Objectives of the Study
As pointed out, this study is focused to trace out theimpact of rolling settlement on day of the week effectfor its profitability and sustainability in the long run. Inparticular, the present study intends to accomplish thefollowing objectives:
● To identify non-random pattern in the stockreturns for all trading days in a week.
● Is anomalous pattern in the stock returns, if any,stable and can investors’ strategize this evidencefor abnormal returns consistently?
● To identify the impact of rolling settlement onanomalous return pattern for its profitability andsustainability in the long run.
Hypotheses
In order to focus on the said objectives, the study underconsideration intends to examine validity of the followingnull hypotheses:
H01: That returns of each weekday are coming fromsame population; that is to say that average returnon each weekday is same.
H02: That, in absence of H01, anomalous patterngradually subsides in the long run to reinforcerandomness in market series that trading strategiesbased on anomalous behavior fails to yieldconsistent abnormal returns in the long run.
H03: Undeterred by rolling settlement, marketmovement persists equivocally and continues tohave anomalous patterns as before.
Research Methodology
In order to test the validity of the null hypotheses outlinedabove, three market indices series viz., BSE Sensex, Sand P CNX Nifty, and S and P CNX 500 were consideredin the study. These indices are fairly representative forstock trading activity visibility (BSE Sensex),acceptability (S and P Nifty 50) and market breadth (Sand P Nifty 500) in India. Closing value of these marketseries were obtained for a ten-year period for April 1997to March 2007 on daily basis. The study period dividedinto two sub-periods of five years duration each viz., i)
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34 ● Chander and Mehta
justify the use of Kruskal-Wallis statistics in the context.Unable to establish validity of null hypotheses in theframe, spikes in the underlying return distribution wererevisited for anomalous pattern in the series in terms ofc2 values. In the process, trading return for each day wasconsidered an independent sample itself and total weeklyreturn has not been a constituent in the Kruskal-Wallistest.
The Kruskal-Wallis H-statistics is obtained in theframework given below:
2
1
123( 1)
( 1)
Kj
j j
RH N
N N n== − +
+ ∑
(Wherein, N is total number of observations in allmarket series, Rj is sum of ranks in a given market series(j), and nj is sum of ranks of all observations in marketseries (j), K is number of independent samples).
Needless to add, Kruskal-Wallis H test follows c2
distribution with (k-1) degrees of freedom. Therefore,underlying c2 values are compared with Kruskal-Wallisvalues to examine the validity of null hypotheses for 0.05and 0.01 levels of significance.
RESULTS AND DISCUSSION
As pointed out earlier that the available literatureindicates positive return bias for Fridays and negativebias on the Mondays (Chaudhary, 1991). Studies likeBoard and Scutcliffe (1988) noted withdrawal of this biasin the long run. The distribution pattern of returns forthe three indices (Annexure-1) points to some anomaloustendency in the pattern of returns for various trading daysand more so in the pre-rolling settlement arena. Thetenacity and veracity of such anomalous pattern isexamined and discussed below:
A) Rolling Settlement and BSE Sensex Returns
Sensex based mean returns during the study period aredescribed in table 1 with summary statistics viz., standarddeviation, skewness and kurtosis in order to understandthe behavior pattern of mean returns for each trading dayalong with the Kruskal-Wallis H test statistics. Theresults reveal positive mean returns on Mondays andWednesdays in the pre-rolling settlement period whilethe same for other trading days was negative. Spread ofmean return in this period was considered statisticallysignificant at 0.01 levels to invalidate H01. However, asort of contradiction is noticed compared to
corresponding findings in developed capital markets inthis regard. The documented literature in the contextpoints to lower Monday returns while the Friday returnswere noticed higher compared to other weekdays. Thisanomalous return pattern on the BSE is explained in thesense that market participants might have created newpositions on the Monday being first trading day of theensuing settlement cycle. Monday returns were alsoconsidered more variable compared to other trading days’returns. Mean return series under reference was foundnegatively skewed on all trading days except forWednesdays and Thursdays. Thus, a significantdifferentiation was noted for spread and distribution ofmean daily returns on the BSE before introduction ofthe rolling settlement.
In contrast to the pre-rolling settlement period, aweekend effect of the kind documented by earlier studies(Gupta, 2006) was noticed in the post-settlement period,as mean returns were the highest on Fridays and the loweston the Mondays with a higher incidence of variability.But the same were skewed to the right on Tuesdayscompared to other weekdays. On the whole, spread anddistribution of mean returns were not found statisticallysignificant in the post rolling settlement period. It can beinferred that as a consequence of rolling settlement onIndian stock markets moved rationally and anomalouspattern noticed earlier has disappeared. It further impliesthat market movements cannot be consistently relied forprofitable strategies in the long run.
Thus, the results reported above corroborate theearlier findings as regard to the withdrawal of weekendeffect (Board and Scutcliffe, 1988) in the long run. It iscurious to note that Friday returns drawing attention forbeing significantly lower in the pre-rolling settlementperiod and for being positive and the highest in the postrolling settlement period. It may be inferred that diversetrade settlement cycle on the two premier exchanges(BSE and NSE) in pre-rolling settlement might havecontributed to the lowest Friday earnings in pre-rollingsettlement period. After introduction of the rollingsettlement, weekend effect noticed earlier hasdisappeared to indicate smoothened market movementsfor all trading days in a week. As a result, marketvariability and volatility has decreased considerably.
B) Rolling Settlement and S and P CNX NiftyReturns
Compared to the BSE Sensex, SandP CNX Nifty is broadbased index and accounts for higher trading volume.
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Anomalous Market Movements and the Rolling Settlement: Empirical Evidence from Indian Stock Markets ● 35
CNX Nifty return series is expected to be more evenlydistributed with lesser variability and spread. For deeperinvestigation, the results obtained for two sub-periodsare reported in Table 2. For pre-rolling settlement period,it indicate highest positive incidence of mean return onWednesday (first trading day) while the same were foundnegative for all other days with the lowest incidence onFriday. The variability in this return series was notedhighest on Monday while Tuesday returns wereleptokurtic distributed. The return differentiation acrossweekdays was considered statistically significant (0.01level). These results signify mid-of-the-week or the
Wednesday effect. This kind of drift in the return seriesfurther validate the preposition as to the predictableanomalous pattern in view of Wednesday had been thefirst trading day of settlement cycle on the NSE.
After introduction of compulsory rolling settlement,an even pattern of mean returns was noticed in terms ofS and P Nifty index for each trading day. During thisperiod, though index returns were positive for allweekdays but the highest incidence was noticed forFriday while the same was the lowest on Monday. Themean returns under reference were skewed to the left
Table 1: Rolling Settlement and BSE Sensex Returns, April 1997-March 2007
Week Days Monday Tuesday Wednesday Thursday Friday Kruskal-Wallis
A) Before Rolling Settlement, April 1997-December 2001
Observations 245 247 249 250 238
Mean 0.00098 -0.000075 0.0007 -0.0002 -0.00138 14.666**
*Significant at 0.05, ** Significant at 0.01 levels.
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36 ● Chander and Mehta
for all trading days except for Tuesdays. Mondayreturns were also considered more variable comparedto other trading days’ return. The spread anddistribution of these returns further suggests that thesame were leptokurtic except for Wednesday. However,this return differentiation in post-rolling settlementperiod was not considered statistically significant interms of Kruskal-Wallis test statistics. The pattern ofreturns under reference in post rolling settlement periodhas depicted an even distribution in terms of CNX Niftyindex series for all trading days. In this regard, it maybe inferred that market participants might have netted/squared their positions on Tuesday on the NSE and onFriday on the BSE and have renewed the same onWednesday on the two exchanges. Though, the returndifferentiation in post rolling settlement phase was notconsidered statistically significant yet the samecategorically pointed to the switching of trade positionson the settlement days.
C) Rolling Settlement and S and P CNX 500Returns
In order to have a deeper investigation on marketmovements, a broader market proxy, S and P CNX 500,is considered in this section. This index is broad basedin terms of both wider capitalisation and market depth.Essentially, the composition of S and P CNX 500 is asenduring and versatile as to include all segments ofnational economy. The results obtained in this regardfor the study period is presented in the Table 3 as under:
The results reveal highest (positive) mean returnin relation to S and P CNX 500 index on Wednesdaywhile the same were lowest on Friday (negative)compared to other weekdays before the rollingsettlement. These returns were relatively more variableon Monday and except Thursday were negativelyskewed. The distribution pattern indicates a platykurticpattern on Tuesdays and Fridays. This spread anddistribution was found statistically significant at 0.01level signifying the day of week effect. However, apositive bias was noted in the underlying return seriesin the post-rolling settlement phase with a highestincidence on Mondays and lowest on Fridays. Exceptfor Tuesday, returns in this period were also negativelyskewed and akin to the pre-rolling settlement phase.Monday returns were highly variable and platykurtic.But this differentiation of mean returns was notconsidered statistically significant. On the whole, dailymean returns in terms of S and P CNX 500 indexindicated positive overall bias in both sub-periods butthe same were larger in magnitude in the post rollingsettlement period. It can be inferred that broader marketproxy (CNX 500 index) has generated higher returnsdifferentiation implying that some of smaller size firms(not included in the other indices) had yielded evenhigher returns in the period under consideration. It iscurious to note robustness of the Wednesday returns(mid-of-the-week effect) in the pre-rolling settlementperiod were conspicuously invisible in the post-rollingsettlement period.
Table 3: Rolling Settlement and S and P CNX 500 Returns, April 1997-March 2007
Week Days Monday Tuesday Wednesday Thursday Friday Total Kruskal-Wallis
A) Before Rolling Settlement, April 1997-December 2001
Observations 244 247 250 253 241 1235
Mean 0.000238 -0.00036 0.00195 -0.00026 -0.001259 0.00031
*Significant at 0.05, ** Significant at 0.01 levels.
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Anomalous Market Movements and the Rolling Settlement: Empirical Evidence from Indian Stock Markets ● 37
CONCLUSION
The result reported in the study-documented evidenceon the day of week effect on two premiere stockexchanges, NSE and BSE for ten-year study period, April1997 - March 2007. Before introduction of rollingsettlement, market participants particularly the daytraders were inclined to square off their positions onFriday on the BSE to renew similar positions on NSE onthe same day. Likewise, positions were switched fromthe NSE to BSE on Tuesday - being last trading day onthe NSE. But the Wednesday witnessed all-round buyingactivity on the two exchanges before introduction ofrolling settlement. Contrary to earlier findings, the resultsreported in this study documented the end of the weekeffect on the BSE for lowest Friday returns in the pre-rolling settlement period. It is quite difficult to find anycredible exposition to lowest Friday return on the NSEin same time period except for investor psychosis andsentiments. Coupled with larger trading volume,depressing investor sentiments (tantamount towidespread stock selling) on Friday, being last tradingday on the BSE had exerted pressure on marketmovements on the NSE too.
Akin to these tendencies, returns were highest onMonday on the BSE and that on Wednesday on the NSE,being the first trading days in trade settlement cycle, inthe pre-settlement period. It is the reminiscent of Indianinvestor psychosis and its trading behavior. The findingsrecorded for post-rolling settlement period were inharmony to those recorded across the globe as the Fridayreturns were lowest and the same were highest onMonday to document credible evidence for day of the
week effect. It may be inferred that arbitrageopportunities existed across the markets before rollingsettlement have disappeared consequent to introductionof the rolling settlement. Further, that the introductionof rolling settlement had caused a discernable shift inmarket movements such that pattern of stock returns werealigned to that noticed for developed capital marketsacross the globe. Thus, the results reported havegenerated adequate evidence to make the followinggeneralisations:
i) Day of the week effect was noticed in the sensethat Mondays and Fridays were criticallysignificant trading days before introduction ofthe rolling settlement.
ii) That stock returns were evenly and uniformlydistributed in the sense that the day of weekeffect noticed in pre rolling settlement periodfails to persist in the post rolling settlementperiod.
iii) Generalisation (ii) signifies the futility of thetrading strategies based on the information cuederived from generalisation (i) for consistentprofit propagation.
On the whole, the results reported corroborate earlierfindings (Lakonishok and Levi, 1982) that the rollingsettlement influences the weekend effect and the marketmovements. Also that it noted withdrawal of anomalouspattern of stock returns over a period of time as noticedby Board and Sutcliffe, 1988 study. Similarly, thesefindings corroborated that of Nath and Dalvi (2005) thatMondays and Fridays were critically significant trading
Table 4: Day-of-Week-Effect on the Indian Stock Exchanges, April 1997- March 2007
Indices BSE Sensex S and P CNX Nifty S and P CNX 500
A) Before Rolling Settlement, April 1997-December 2001
Highest Return Monday Wednesday Wednesday
Lowest Return Friday Friday Friday
Status of Ho
At 0.01 level Rejected Rejected Rejected
At 0.05 level Rejected Rejected Rejected
B) After Rolling Settlement, January 2002-March 2007
Highest Return Friday Friday Friday
Lowest Return Monday Monday Monday
Status of Ho
At 0.01 level Accepted Accepted Accepted
At 0.05 level Accepted Accepted Accepted
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38 ● Chander and Mehta
days before introduction of rolling settlement. But theresults reported in present study contested the logic ofpersistence of Fridays to be the most significant tradingday even after the rolling settlement. On the whole, thestudy documented evidence on the subject thatanomalous returns pattern on the Indian bourses hasdissipated after the introduction of rolling settlement.And that the market series behaved more rationally andlogically alike to those in the developed capital markets.In addition, it also documented evidence on thewithdrawal of week end effect in the long run.
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I) SandP CNX NIFTY returns
Fre
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cy
50
40
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Mean =-6 .95E-4 ˝
Std. Dev. =0.008524…̋
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0
-0.0
40
00
0
Tuesday
M ean =-7.92E-4 ˝
Std. Dev. =0.007008…̋
Fre
qu
en
cy
50
40
30
20
10
0
0.0
40
00
0
0.0
30
00
0
0.0
20
00
0
0.0
100
00
0.0
00
00
0
-0.0
10
00
0
-0.0
20
00
0
W e dne sda y
Mean = 0.002716˝
Std . Dev. =0.007479…̋
Fre
qu
en
cy
40
30
20
10
0
0.0
300
00
0.0
20
00
0
0.0
10
00
0
0.0
000
00
-0.0
10
00
0
-0.0
20
00
0
-0.0
30
00
0Thu rs da y
Mean =-2.05E-4˝
Std. Dev. =0.007017…̋
Fre
qu
en
cy
50
40
30
20
10
0
0.0
400
00
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
Friday
M ean =-9 .24E-4˝
Std . Dev. =0.006832…̋
ANNEXURE-1(A)
Distributional Properties of Sample Returns, April 1997-December 2001
VISION—The Journal of Business Perspective ● Vol. 11 ● No. 4 ● October–December 2007
40 ● Chander and Mehta
II) BSE Sensex Returns
Fre
qu
en
cy
50
40
30
20
10
0
0.0
40
00
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
40
00
0
M on day
M ea n = 9.8 1E-4˝
Std. D ev . = 0.00 9117 …̋
Fre
qu
en
cy
40
30
20
10
0
0.0
40
00
0
0.0
20
00
0
0.0
00
000
-0.0
20
00
0
W ednesday
M ea n = 6.7 4E-4˝
Std. D ev . = 0.00 7564 …̋
Fre
qu
en
cy
50
40
30
20
10
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
40
00
0
Tu esd a y
M ean =-1 .4 9E-4 ˝
Std. D ev . = 0.00 7169 …̋
Fre
qu
en
cy
40
30
20
10
0
0.0
30
00
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
10
00
0
-0.0
20
00
0
-0.0
30
00
0
T hu rsda y
M ean =-2 .0 5E-4 ˝
Std. D ev . = 0.00 7398 …̋
Fre
qu
en
cy
50
40
30
20
10
0
0.0
40
00
0
0.0
20
00
0
0.0
00
000
-0.0
20
00
0
Friday
M ea n = 0.000 000˝
Std. D ev . = 0.00 7628 …̋
VISION—The Journal of Business Perspective ● Vol. 11 ● No. 4 ● October–December 2007
Anomalous Market Movements and the Rolling Settlement: Empirical Evidence from Indian Stock Markets ● 41
III) SandP CNX 500 returns
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
40
00
0
0.0
20
00
0
0.0
00
000
-0.0
20
00
0M on day
M ea n = 2.3 8E-4˝
Std. D ev . = 0.00 9526 …̋
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
40
00
0
Tu esd ay
M ean =-3 .6 0E-4 ˝
Std. D ev . = 0.00 7010 …̋
Fre
qu
en
cy
40
30
20
10
0
0.0
30
00
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
100
00
-0.0
20
00
0
W ednesday
M ea n = 0.001 953˝
Std. D ev . = 0.00 7679 …̋
Fre
qu
en
cy
40
30
20
10
0
0.0
30
00
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
10
00
0
-0.0
20
00
0
-0.0
30
00
0
Thursday
M ean =-2 .6 5E-4 ˝
Std. D ev . = 0.00 7267 …̋
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
40
00
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
400
00
-0.0
60
00
0
Friday
M ea n = 0.000 000˝
Std. D ev . = 0.00 8078 …̋
VISION—The Journal of Business Perspective ● Vol. 11 ● No. 4 ● October–December 2007
42 ● Chander and MehtaF
req
ue
nc
y
60
50
40
30
20
10
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
40
00
0
-0.0
60
00
0
M onday
M ea n = 9.3 9E-5˝
Std. D ev . = 0.00 6770 …̋
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
40
00
0
0.0
30
00
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
10
00
0
-0.0
20
00
0
Tu esd ay
M ea n = 3.9 5E-4˝
Std. D ev . = 0.00 5570 …̋
Fre
qu
en
cy
40
30
20
10
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
10
00
0
-0.0
20
00
0
W ednesday
M ea n = 2.7 9E-4˝
Std. D ev . = 0.00 5006 …̋
Fre
qu
en
cy 60
40
20
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
40
00
0
Th ursd ay
M ea n = 6.2 0E-4˝
Std. D ev . = 0.00 6021 …̋
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
30
00
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
10
00
0
-0.0
20
00
0
-0.0
30
00
0
Friday
M ea n = 9.2 1E-4˝
Std. D ev . = 0.00 6092 …̋
ANNEXURE-1(B)
Distributional Properties of Sample Returns, January 2002-March 2007
I) BSE Sensex Returns
VISION—The Journal of Business Perspective ● Vol. 11 ● No. 4 ● October–December 2007
Anomalous Market Movements and the Rolling Settlement: Empirical Evidence from Indian Stock Markets ● 43F
req
ue
nc
y
100
80
60
40
20
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
40
00
0
-0.0
60
00
0
M onday
M ea n = 6.2 0E-5˝
Std. D ev . = 0.00 7028 …̋
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
40
00
0
0.0
30
00
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
10
00
0
-0.0
20
00
0
Tu esday
M ea n = 3.2 8E-4˝
Std. D ev . = 0.00 5663 …̋
Fre
qu
en
cy
40
30
20
10
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
10
00
0
-0.0
20
00
0
W ed ne sd ay
M ea n = 2.0 6E-4˝
Std. D ev . = 0.00 5217 …̋
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
40
00
0
Thursd ay
M ea n = 6.5 4E-4˝
Std. D ev . = 0.00 6297 …̋
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
40
00
0
Friday
M ea n = 8.1 6E-4˝
Std. D ev . = 0.00 6431 …̋
II) S and P CNX Nifty Returns
VISION—The Journal of Business Perspective ● Vol. 11 ● No. 4 ● October–December 2007
44 ● Chander and Mehta
III) S and P CNX 500 returns
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
40
00
0
0.0
20
00
0
0.0
00
000
-0.0
20
00
0M on day
M ea n = 2.3 8E-4˝
Std. D ev . = 0.00 9526 …̋
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
40
00
0
Tu esd ay
M ean =-3 .6 0E-4 ˝
Std. D ev . = 0.00 7010 …̋
Fre
qu
en
cy
40
30
20
10
0
0.0
30
00
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
100
00
-0.0
20
00
0
W ed nesd ay
M ea n = 0.001 953˝
Std. D ev . = 0.00 7679 …̋
Fre
qu
en
cy
40
30
20
10
0
0.0
30
00
0
0.0
20
00
0
0.0
10
00
0
0.0
00
00
0
-0.0
10
00
0
-0.0
20
00
0
-0.0
30
00
0
Th ursd ay
M ean =-2 .6 5E-4 ˝
Std. D ev . = 0.00 7267 …̋
Fre
qu
en
cy
60
50
40
30
20
10
0
0.0
40
00
0
0.0
20
00
0
0.0
00
00
0
-0.0
20
00
0
-0.0
400
00
-0.0
60
00
0
Friday
M ea n = 0.000 000˝
Std. D ev . = 0.00 8078 …̋
Ramesh Chander ([email protected]) is a faculty at Department of Management, Kurukshetra University. He has15 years of teaching and research experience and is credited with publications on capital market operations in reputed journals of India.His areas of interests include capital market theory, security analysis and portfolio management.
Kiran Mehta ([email protected]) is faculty at the Lovely Professional University at Jalandhar in Punjab. Before joiningLovely Professional University, she served at the Chaudhary Devi Lal University at Sirsa in Haryana as a guest faculty. Presently sheis enrolled as a Ph.D. scholar at the Department of Management, Kurukshetra University, Kurukshetra.
