BSE – SENSEX is the short signifier of the BSE – Sensitive Index. The index is widely used to mensurate the public presentation of the Indian Stock Market. It is a Market Capitalization Weighted index of 30 stocks stand foring a sample of big, liquid, good established and financially sound companies. The index is widely reported in both, the domestic and international, print and electronic media and is widely used to mensurate the public presentation of the Indian stock markets. The BSE Sensex is the benchmark index of the Indian capital market and one which has the longest societal memory. In fact the Sensex is considered to be the pulsation of the Indian stock markets. It is the oldest index in India and has acquired a alone topographic point in the corporate consciousness of investors. Further, as the oldest index of the Indian Stock Market, it provides clip series informations over a reasonably long period of clip. One of the most of import properties of Sensex is to keep continuity with the past i.e. to update the basal twelvemonth norm. The basal twelvemonth value accommodation ensures that the rights issue and new capital of the index scrips do non destruct the value of the index. The daily care of the Sensex is done by the Bombay Stock Exchange and particular attention is taken to include merely those scrips, which pass through several filters.
The Stock Exchange, Mumbai popularly known as BSE was established in 1875 as The Native Share and Stock Brokers Association. It is the oldest 1 in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit doing Association of Persons ( AOP ) and is the first Stock Exchange in the state to hold obtained lasting acknowledgment in 1956 from the Government of India under the Securities Contracts ( Regulation ) Act, 1956. The Exchange, while supplying an efficient and crystalline market for trading in securities, debt and derived functions upholds the involvements of the investors and ensures redressal of their grudges whether against the companies or its ain member agents.
A Governing Board holding 20 managers is the vertex organic structure, which decides the policies and regulates the personal businesss of the Exchange. The Governing Board consists of 9 elective managers, who are from the broking community ( tierce of them retire every twelvemonth by rotary motion ) , three SEBI campaigners ( Securities & A ; Exchange Board of India ) , six public representatives an Executive Director, Chief Executive Officer and a Chief Operating Officer. The Executive Director and the Chief Executive Officer are responsible for the daily disposal of the Exchange and he is assisted by the Chief Operating Officer and other Heads of Departments.
OBJECTIVES The BSE Sensex is the benchmark Index of the Indian Stock Market with broad credence among single investors, institutional investors and fund directors. The aims of the index are:
i?? TO MEASURE MARKET MOVEMENTS
Given its long history and broad credence, no other index matches the BSE Sensex in reflecting market motions and sentiments. Sensex is widely used to depict the temper in the Indian Stock Market.
i?? BENCHMARK FOR FUNDS PERFORMANCE
The inclusion of the Blue bit companies and the broad and balanced industry representation in the Sensex makes it the ideal benchmark for fund directors to compare the public presentation of their financess.
i?? FOR INDEX BASED DERIVATIVE PRODUCTS
Since Sensex comprises of taking companies in all the important sectors in the economic system, we believe that it will be the most liquid contract in the Indian market and will earn a pre dominant market portion
List OF SECURITIES Listing means admittance of securities to traffics on a recognized stock exchange. The securities may be of any public limited company, Central or State Government, quasi-governmental and other fiscal institutions/corporations, municipalities etc. The aims of listing are chiefly to:
i?? Provide liquidness to securities
i?? Mobilize nest eggs for economic development
i?? Protect involvement of investors by guaranting full revelations.
The Exchange has a separate Listing Department to allow blessing for listing of securities of companies in conformity with the commissariats of the Securities Contracts ( Regulation ) Act, 1956, Securities Contracts ( Regulation ) Rules, 1957, Companies Act, 1956, Guidelines issued by SEBI and Rules, Bye-laws and Regulations of the Exchange.
SELECTION CRITERIA The standard for choice and reappraisal of scrips for the BSE Sensex can be explained in the undermentioned mode:
A. QUANTITATIVE CRITERIA
1. MARKET Capitalization: The Scrip should calculate in the top 100 companies listed by market capitalisation. Besides market capitalisation of each of the scrip should be at least. 0.5 % of the entire market capitalisation of the Index i.e. the minimal weight should be 0.5 % . Since the BSE Sensex is a market capitalisation weighted index, this is one of the primary standards for scrip choice. ( Market Capitalization would be averaged for last 6 months ) .
a. Trading Frequency: The scrip should hold been traded on each and every trading twenty-four hours for the last six months. Exceptions can be made for utmost grounds like scrip suspension etc.
B. Number of Trades: The scrip should be among the top 150 companies listed by mean figure of trades per twenty-four hours for the last one twelvemonth.
c. Value of Shares Traded: The scrip should be among the top 150 companies listed by mean value of portions traded per twenty-four hours for the last one twelvemonth.
d. Trading Activity: The mean figure of portions traded per twenty-four hours as a per centum of the entire figure of outstanding portions of the company should be greater than 0.05 % for the last twelvemonth.
3. Continuity: Whenever the composing of the Index is changed, the continuity of historical series of index values is re-established by correlating the value of the revised index to the old index ( index before alteration ) . The back computation over the last annual period is carried out and correlativity of the revised index to the old index should non be less than 0.98. This ensures that the historical continuity of the index is maintained.
4. INDUSTRY Representation: Scrip choice would take into history a balanced representation of the listed companies in the existence of BSE. The index companies should be leaders in their industry group.
5. Listed History: The scrip should hold a listing history of at least 6 months on BSE. However, the Committee may loosen up the standards under exceeding fortunes.
B. QUALITATIVE CRITERIA
1. SCRIP GROUP: The Scrip should sooner be from aˆzAaˆY group.
2. Path Record: The company should sooner hold uninterrupted dividend paying record or / and promoted by direction holding proven record.
S & A ; P CNX NIFTY
The NSE -50 Index was launched by the National Stock Exchange of India Limited, taking as base the shutting monetary values of November 3, 1995 when one twelvemonth of its Capital Market section was completed. It was later renamed S & A ; P CNX Nifty- with S & A ; P bespeaking indorsement of the Index by Standard and PooraˆYs and CNX standing for CRISIL NSE Index. The S & A ; P CNX NIFTY, besides popularly known as the Nifty 50, is one of the most scientific indices in India that reflects the monetary value motion of 50 blue- french friess, big cap, liquid and extremely traded stocks of 23 sectors. The Nifty is managed by India Index Services & amp ; Merchandises Ltd. ( IISL ) . The entire value of all Nifty stocks is about 70 % of the traded value of all stocks on the NSE. Nifty stocks represent about 59 % of the entire market capitalisation.
OBJECTIVES The basic thought of this index is to determine the motions of the stock market as a whole by tapping the intelligence which can impact the stock. The index besides averages out the good stock – specific intelligence for a few companies and bad stock – specific intelligence for others and left with the intelligence that is common to all stocks. The intelligence that is common to all stocks is intelligence about India, which is the exclusive intent of NSE Nifty. Harmonizing to NSE, the Index was introduced with the aims of:
1. Reflecting market motion more accurately,
2. Supplying Fund Managers with a tool for mensurating portfolio returns vis-a-vis market returns, and
3. Supplying a footing for presenting Index based derived functions.
This paper discusses Efficient Market Hypothesis ( thereby referred to as EMH ) , seasonalities and its deductions in both advanced and emerging securities markets. EMH suggests that investors can non anticipate to out execute the market systematically on a hazard adjusted footing ( Mayo, 2003 ) . Harmonizing to Fama ( 1965 ) who developed the Efficient Market Hypothesis, “ an efficient market is a market where there are a big figure of rational profit-maximizers actively viing, with each seeking to foretell future market values of single securities, and where of import current information is about freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a state of affairs where at any point in clip, existent monetary values of single securities already reflect the effects of information both on events that have already occurred and on events which, as of now, the market expects to take topographic point in the hereafter. In other words, in an efficient market at any point in clip, the existent monetary value of a security will be a good estimation of its intrinsic value. ” On the other manus, in an inefficient market, EMH would non keep. This suggests that being of cringle holes which could be exploited to do unnatural returns by foretelling market monetary value forms, utilizing past monetary value information and insider information. These market inefficiencies, besides called market anomalousnesss have received as much research work as EMH.
2. THREE FORMS OF MARKET EFFICIENT HYPOTHESIS
There are three signifiers of market efficiency in an informationally efficient market, where monetary values adjust rapidly and accurately to new information ( Emery et al, 2007 ) . These signifiers show the grade of efficiency of security markets and effort to reply the inquiry of how efficient a market is. ( Mayo, 2003 and Keane, 1983 )
2.1 Weak Form Efficiency
The weak signifier of EMH asserts that the current monetary value to the full reflects information contained in the past history of monetary values merely. Stock market monetary value information is available via most agencies of mass communicating. Therefore, investors should be unable to do superior net income from usage of public information i.e. day-to-day stock market monetary values or company consequences available to all. Again, many investing bankers and fiscal analysts devise investing schemes utilizing proficient analysis of past informations to surpass the market and their rivals, in fulfilling their clients demand for superior returns. Transaction costs of trading, investing advice, analysis and committees when considered, affects the investors return, particularly for investors who continue to utilize traditional full service agents ( Mayo,2003 )
2.2 Semi Strong Form Efficiency
The semi strong signifier of EMH, harmonizing to Brealey et Al ( 2006 ) , monetary values reflect non merely past monetary values but all other published information, such as you might acquire from reading the fiscal imperativeness. Similarly, Fama ( 1969 ) defined it as publically available information with illustrations of proclamations of one-year net incomes and stock splits. Semi-strong signifier of EMH asserts that current monetary values to the full reflects public cognition about the implicit in companies and that attempts to get and analyse this cognition can non be expected to bring forth superior investing consequences ( Lorie & A ; Hamilton 1973 ) .
2.3 Strong Form Efficiency
The strong signifier of EMH suggests that portion monetary values to the full reflect non merely published information but all relevant information including informations non yet publically available. It besides asserts that non even those with privileged information ( insiders ) can frequently do usage of it to procure superior investing consequences ( Lorie & A ; Hamilton 1973 ) .
These three signifiers of EMH are non independent of one another. For the market to be efficient in the semi-strong signifier, it must besides be efficient in the weak signifier, because if monetary value motions follow a predictable way which the perceptive perceiver can work productively, the deduction is that the monetary value has reacted easy or freakishly to published information. Likewise, for the market to be efficient in the strong signifier it must besides be efficient at the other two degrees, otherwise, the monetary value would non capture all relevant information ( Keane, 1983 ) . He went on to province that for an inefficiency ( seasonality ) to be operationally important it must be exploitable. Keane ( 1983 ) analyses four standards an exploitable inefficiency should fulfill, these are: ( a ) it should be “ reliable ” – bearable by decently conducted statistical research. ( B ) It should be “ identifiable ” -not merely schemes or people that beat the market but concrete and verifiable grounds. ( degree Celsius ) It should be “ material ” – inefficiencies are non exploitable unless they are sufficient to counterbalance for the costs and hazards of prosecuting them. ( vitamin D ) It should be “ relentless ” -the value of inefficiency is non merely a record of its being in the past but that it will go on to be in future.
These standards are really of import in understanding the different types of market seasonality or anomalousness, their being, prevalence and their deductions for the EMH.
3. SEASONALITIES AND ITS IMPLICATIONS FOR THE EMH
Seasonalities, as the name suggests are clip regularities, forms or predictable tendencies. In the fiscal securities market, seasonalities would propose predictable clip forms in the behavior of the stock market-volume of stock trades, stock returns etc. If it does be, so investors can work the market for superior returns in all fiscal securities markets. Seasonalities as defined by Alagidede ( 2008 ) are groundss of market efficiency anomalousnesss. These are besides known as seasonal anomalousnesss ( calendar effects ) which may be slackly referred to as the inclination for fiscal returns to expose systematic forms at certain times of the twenty-four hours, hebdomad, month or twelvemonth. Calendar effects include: January consequence, the month of the twelvemonth consequence, monthly consequence, vacation consequence, Monday consequence / twenty-four hours of the hebdomad consequence, weekend consequence, bend of the twelvemonth consequence etc. ( Guo and Wang, 2007 ) . Discoursing a few of them will be worthwhile.
3.1 The January Effect
The January consequence is where returns are much higher during the month of January than any other month, i.e. “ where investors can gain a disproportionately high sum of the entire one-year return available from both fixed income assets and equity in January ” Clare et Al ( 1995 ) . Most research conducted in developed economic systems confirm the presence of the January consequence, although, in more recent times they seem to be vanishing. Keim ( 1983 ) and Reinganum ( 1983 ) show that the January consequence and the size consequence are extremely interrelated. Blume and Stambaugh ( 1983 ) discovered, after commanding for upward prejudices in little stock returns, the size consequence was merely important in January.
An extended sum of surveies has gone into the month of the twelvemonth consequence. Mills and Coutts ( 1995 ) concluded that stock returns are much higher in the month of January in the UK utilizing FTSE indices between January 1986 and October 1992 ( FTSE 100, Mid 250 and 350 indices ) . Gultekin and Gultekin ( 1983 ) utilizing 17 states besides found grounds that the January return is much higher than other months returns,
Alagidede ( 2008 ) tested for month of the twelvemonth consequence in emerging African markets and concluded that the January consequence is positive and important for Nigeria, Egypt and Zimbabwe. However Guo and Wang ‘s ( 2007 ) survey on the emerging Chinese stock market shows that there is no important January consequence in Chinese stock market.
Many research workers have sought the cause of the January consequence and arrived at a figure of causes which include: tax-loss merchandising hypothesis, proviso of new information at the terminal of a financial twelvemonth, house size had the important higher hazard in the beginning of the twelvemonth than the remainder of the twelvemonth and the systematic inclinations for shuting monetary values to be recorded at the command in the last traded in December and at the ask in early January ( Guo and Wang ‘s, 2007 )
3.2 The Holiday Effect
The definition of a vacation is comparative, subjective and would change for different states and their capital markets e.g. Christian, Muslim, public vacations etc. One definition of a vacation looks at yearss, other than Saturday or Sunday, upon which the market is closed ( Alagidede, 2008 ) . Ariel ( 1990 ) used US informations studies to demo that the trading twenty-four hours prior to vacations on norm shows high positive returns, this consequence was supported by Kim and Park ( 1994 ) for US, Japan and UK.However, Cadsby and Ratner ( 1992 ) utilizing UK informations concluded that the vacation consequence was undistinguished This decision was challenged by Mills and Coutts ( 1995 ) in their survey of calendar effects utilizing London stock FTSE indices. Coutts et Al ( 2000 ) showed that the vacation consequence is present in their survey of the Athens Stock Exchange ( ASE ) , although, no similar survey has been undertaken on the ASE which would hold been used as a footing of comparing. Their consequences were consistent with international groundss.
3.3 The Weekend Effect
One of the most prevailing anomalousnesss appears to be a weekend consequence where stocks display significantly lower returns over the period between Friday ‘s stopping point and Monday ‘s stopping point ( Arsad and Coutts, 1995 ) . Jaffe and Westerfield ( 1985 ) examined the day-to-day stock market returns in 4 international stock markets including, the London stock Exchange ‘s FT30 over the period 1950 – 1982 and found a important weekend consequence. Consistent with Jaffe and Westerfield ( 1985 ) findings, Condoyanni et Al ( 1987 ) besides found the being of the weekend consequence in the UK when analyzing the FT30 over the period 1979 – 1994. Arsad and Coutts ( 1996, 1997 ) besides found the weekend consequence in the FT30 from the period 1935 – 1994, although harmonizing to their research the consequence was found non to be relentless. Board and Sutcliffe ( 1988 ) examined the weekend consequence in the Financial Times all portion index over the period 1962 – 1986 and found clear grounds of a weekend consequence over the sample period, with the significance of the consequence decreasing over clip. This is consistent with ulterior research done by Dubois and Louvet ( 1996 ) on the same index for the period 1969 – 1992, in which negative returns was found on Monday, which are compensated by unnatural positive returns on Wednesday. Agrawal and Tandon ( 1994 ) examined the weekend consequence in 18 states including the UK and found a negative Monday return when the market rises in the old hebdomad. Furthermore, they found the consequence vanishing in 1980. Mills and Coutts ( 1995 ) found grounds of the being of the weekend consequence in the UK when the FTSE 100, Mid 250, 350 and certain of the attach toing industry baskets was examined for the period from 1986 to 1992. Ajayi et Al ( 2004 ) investigated twenty-four hours of the hebdomad stock return anomalousness, utilizing major market stock indices in 11 eastern European emerging markets for the period 1994 – 2002. The consequences show negative and positive Monday returns in six and five emerging markets severally, of which merely two of the six show negative Monday returns and one of the five show positive Monday returns and were statistically important. Choudhry ( 2000 ) investigated the twenty-four hours of the hebdomad consequence in seven emerging Asiatic stock markets from 1990 – 1995 and found important weekend consequence in some of the markets considered.
3.4 The Day of the Week Consequence:
The twenty-four hours of the hebdomad consequence refers to existence of a form on the portion of stock returns, whereby these returns are linked to the peculiar twenty-four hours of the hebdomad ( Poshakwale 1996 ) . The last trading yearss of the hebdomad, peculiarly Friday, are characterised by well positive returns while Monday, the first trading twenty-four hours of the hebdomad, differs from other yearss, even bring forthing negative returns ( Cross 1973, Lakonishok & A ; Levi ( 1982 ) , Rogalski ( 1984 ) , Keim & A ; Stambaugh ( 1984 ) and Harris ( 1986 ) . In other words, this consequence relates to the difference in returns across different yearss of the hebdomad with the discrepancy in stock returns found to be largest on Mondays and lowest on Fridays ( Raj & A ; Kumari 2006 ) . It should be noted that the twenty-four hours of the hebdomad consequence in emerging capital markets has non been extensively researched and the presence of such an consequence would intend that equity returns are non independent of the twenty-four hours of the hebdomad consequence against random walk theory ( Poshakwale 1996 ) . On the other manus, the international grounds of the study has been slightly assorted. Dubois and Louvert ( 1996 ) find returns to be lower for the beginning of the hebdomad ( but non needfully Monday ) for European states, Hong Kong and Canada. However, it was observed that the anomalousness disappeared in the USA for the most recent periods. Agrawal and Tandon ( 1994 ) , find negative Monday returns in nine states and negative Tuesday returns in eight states ( out of a sum of 19 states ) .
Several theories have been put frontward sing specific clip periods anomalousnesss in the capital market. The twenty-four hours of the hebdomad consequence has been explained by analyzing assorted sorts of measurement mistakes such as: – colony period hypothesis ; which attributes the twenty-four hours of the hebdomad consequence to the colony dates with monetary values higher on the pay-in yearss as compared to the pay-out yearss. Calendar clip ( trading clip ) hypothesis ; implies that since Monday returns are spread across three yearss ( Saturday, Sunday & A ; Monday ) , the returns should be three times every bit high as other yearss. The negative Monday returns travel against this logical thinking, which lead to the proposed theory that returns should be relative to trading clip as opposed to calendar clip ( Raj & A ; Kumari 2006 ) . Information flow hypothesis postulates that the difference in information flow over the weekend compared to other yearss of the hebdomad causes the Monday consequence ( Dyl & A ; Maberly 1988 ) . Often companies hold back negative information till the weekend, giving the investors two non-trading yearss to absorb the information before responding with trading activity. Consequently, all sell orders get pushed to Monday, thereby giving negative returns ( Raj & A ; Kumari 2006 ) . Retail investor trading hypothesis, suggests that negative Monday returns could be the consequence of single investor trading activity ( Brooks & A ; Kim 1997 ) . It was found that trading activity is significantly lower on Monday for big size trades, while little size trades have a higher per centum of sell orders on Monday as compared to other yearss of the hebdomad.
3.5 Trading Month Effect
The trading month consequence besides called the ‘turn-of -the-month ‘ consequence which was foremost documented by Ariel ( 1987 ) utilizing US information shows that returns are merely positive around the beginning and during the first half of trading months, whereas during the 2nd half they are on mean nothing. This survey was replicated by Jaffe and Westerfield ( 1989 ) , for the UK, Japan, Canada and Australia, in their survey. However, merely Australia shows a important monthly consequence. A at odds grounds for the UK in a study from Cadsby and Ratner ( 1992 ) shows a important trading month consequence in the FT 500. Ariel ( 1988 ) offered three accounts for the trading month consequence which include: new information refering corporate hard currency flows, alterations in hazard free rate and alterations in the penchants of market participants taking to fluctuation in demand for securities which can non be offset by supply. Mills and Coutts ( 1996 ) investigated the this consequence utilizing a big sample of day-to-day returns from the Financial Times Industrial Ordinary Share Index and found that a trading month consequence is present but exists for a much shorter period than has been documented by old surveies for both the US and the UK. The information release hypothesis of French ( 1980 ) was accepted as an account of the trading month consequence, merely if the unexpected release of ‘good ‘ and ‘bad ‘ intelligence has a inclination to fall in the concluding and first yearss of trading months, securities would be riskier during these periods, therefore warranting the higher first half returns.
Context of India:
Published surveies that have examined calendar effects in the Indian stock market look to be limited. Kaur ( 2004 ) studies that few surveies have examined the day-of-the-week consequence in the Indian stock market, and farther notes the absence of surveies that examine monthly seasonality in the Indian stock market. Kaur utilized two Indian stock indexes, the Bombay Stock Exchange ( BSE ) 30 index and the National Stock Exchange ( NSE ) S & A ; P CNX Nifty stock index, to analyze the day-of-the-week consequence and the monthly consequence. Kaur did non happen a January consequence in the Indian stock market, but did happen that March and September generated well lower returns, whereas February and December generated significant positive returns.
Sarma ( 2004 ) adds that really few surveies have examined calendar effects during the station reform epoch in the Indian stock market. Sarma investigated the BSE 30, the BSE 100, and the BSE 200 stock indexes to observe the day-of-the-week consequence. Using Kruskal-Wallis trial statistics, Sarma concluded that the Indian stock market exhibited some seasonality in day-to-day returns over the period January 1, 1996 to August 10, 2002. Bodla and Jindal ( 2006 ) examined several seasonal anomalousnesss in the Indian stock market using the S & A ; P CNX Nifty Index for the period January 1998 to August 2005. For the monthly consequence, they did happen some important differences for their sub-period, January 2002 to August 2005. However, they were unable to happen any important differences among single months. In an earlier survey, Ignatius ( 1998 ) examined seasonality in a BSE index and in the Standard and Poor ‘s 500 stock index for the period 1979-1990. Ignatius found that December generated the highest average returns, and that April and June generated high returns in the Indian stock index.
Some surveies examine seasonality in the Indian stock market as portion of a broader analysis of seasonality in several major emerging stock markets. For illustration, Fountas and Segredakis ( 2002 ) investigated monthly seasonal anomalousnesss in 18 major emerging equity markets, including the Indian stock market. They examined the monthly consequence for the period January 1987 to December 1995. For the Indian stock market, they found August returns were significantly greater than April, May, October and November returns. However, they did non happen grounds consistent with hypothesized tax-loss merchandising in the Indian stock market, as the tax-year in India commences in April.
Yakob, Beal and Delpachitra ( 2005 ) examined seasonal effects in 10 Asian Pacific stock markets, including the Indian stock market, for the period January 2000 to March 2005. They province that this is a period of stableness and is hence ideal for analyzing seasonality as it was non influenced by the Asiatic fiscal crisis of the late 1890ss. Yakob, et al. , concluded that the Indian stock market exhibited a month-of-the-year consequence in that statistically important negative returns were found in March and April whereas statistically important positive returns were found in May, November and December. Of these five statistically important monthly returns, November generated the highest positive returns whereas April generated the lowest negative returns.
Evidence of monthly seasonality in the Indian stock market is slightly assorted. This may be, in portion, a effect of the fact that the Indian economic system is in passage and is hence invariably germinating, back uping the impression that farther research into these calendar effects in the Indian stock market is warranted.