The search and investigation of stock market anomalies have always been a popular area of research among the academicians. The Efficient Market Hypothesis (EMH) that was once very well accepted and adored the most dominant place in the traditional finance theories, somehow, in recent times, the validity of the same has been questioned. The evidence of various stock market anomalies that document excess profit making opportunities resulted in critical re-examination of EMH. Probably the two most famous anomalies that have attracted the interest of both academicians and practitioners are the ones that are based on stocks return continuation (known as momentum effect) and long-term stock returns reversal (known as overreaction effect). Ever since DeBondt and Thaler (1985) and Jegadeesh and Titman (1993) drew attention towards the overreaction and momentum effect, these have remained as some of the most hotly debated anomalies in the academic literature. The investment strategies based on such continuation and long-term return reversal effects are commonly known as momentum and contrarian strategies, respectively. Both momentum and long-term reversal effect were found to persist in a majority of the out-of-sample tests using data from the U.S. as well as other developed stock markets across different time periods. Initially, most of the early investigations were based on the U.S. stock market, but gradually the investigation for the same spread out internationally to other developed stock markets. As a result, there exists a vast majority of literature supporting momentum and contrarian profitability in majority of the developed markets.

Prior return effect - momentum and contrarian, is a well documented phenomenon in developed stock markets. This paper examines if there is any prior return effect in Indian stock market, an advanced emerging market in the world. We use daily price data available for stocks forming part of S&P CNX 500 equity index over a total period of five years beginning from July, 2006 to June, 2011.We find that in Indian stock market, security returns do exhibit predictable patterns following extreme daily price shocks. They exhibit a reversal in their direction during few days subsequent to an event of extreme rise insecurity's daily closing prices. Conversely, after experiencing an extreme decline in their daily closing prices, they continue to follow the downward journey recording lower prices on few days subsequent to the day of extreme price decline. Evidence from non-overlapping test period days also indicates overreaction for the winner portfolio and under reaction for the loser portfolio. These findings indicate that investors in the Indian Stock Market are overoptimistic. When re-pricing stocks in response to new information, their immediate reaction causes the stock prices to be above their adjusted expected values.

This book covers all aspects of modern finance relating to portfolio theory and risk–return relationship, offering a comprehensive guide to the importance, measurement and application of the risk–return hypothesis in portfolio management. It is divided into five parts: Part I discusses the valuation of capital assets and presents various techniques and models used in this context. Part II then addresses market efficiency and capital market models, particularly focusing on measuring market efficiency, which is a crucial factor in making correct investment decisions. It also analyzes the major capital market models like CAPM and APT to determine to what extent they are suitable for use in developing economies. Part III highlights the significance of risk–return analysis as a prerequisite for investment decisions, while Part IV examines the selection and performance appraisals of portfolios against the backdrop of the risk–return relationship. It also examines new tools such as the value-at-risk application for mutual funds and the applications of the price-to-earnings ratio in portfolio performance measurement. Lastly, Part V explores contemporary issues in finance, including the relevance of Islamic finance in the increasingly volatile global financial system.

This book discusses capital markets and investment decision-making, focusing on the globalisation of the world economy. It presents empirically tested results from Indian and Southwest Asian stock markets and offers valuable insights into the working of Indian capital markets. The book is divided into four parts: the first part examines capital-market operations, particularly clearance and settlement processes, and stock market operations. The second part then addresses the functioning of global markets and investment decisions; more specifically it explores calendar anomalies, dependencies, overreaction effect, causality effect and stock returns volatility in South Asia, U.S. and global stock markets as a whole. Part three covers issues relating to capital structure, values of firm and investment strategies. Lastly, part four discusses emerging issues in finance like behavioral finance, Islamic finance, and international financial reporting standards. The book fills the gap in the existing finance literature and helps fund managers and individual investors make more accurate investment decisions.

This book gathers selected papers from the 28th Eurasia Business and Economics Society (EBES) Conference, held in Coventry, United Kingdom. While the theoretical and empirical papers presented cover diverse areas of economics and finance in various geographic regions, the main focus is on the latest research concerning the economics of innovation, finance and macroeconomics. The book also includes regional studies.

This study is an exploration of the Indian stock market, focusing on the possible presence of momentum trading. One thing, however, should be noted. While it is true that momentum trading, which tends to generate speculative bubbles, may result in a financial market crash, its nature in contrast might depend on the nature of the economy itself. The study, while exploring the presence and nature of momentum trading on the Indian stock market in recent years, seeks to relate it to significant structural breaks in the Indian or global economy. To be precise, it outlines a potential correlation between the instability in the stock market and the speculative trading on the market, exploring the question of whether it is human psychology that drives financial markets. In the process, the choice of a significant structural break has been obvious: the global financial meltdown of 2007-2008 – a crisis that has often been referred to as the worst ever since the crash of 1929. While analyzing the nature of momentum trading on the Indian stock market with regard to the financial crisis of 2007-08, the study takes into account two major representatives of the market, the BSE (Bombay Stock Index) and NSE (National Stock Index), for the period 2005 to 2012. This study seeks to answer a few important questions. First of all, it tries to unveil the underlying structure of the market. In doing so, it examines the following issues: (i) What was the latent structure of the Indian stock market leading up to the crisis of 2007-08? Does the structure offer insights into designing profitable trading strategies? (ii) Is it possible to construct a profitable portfolio on the Indian stock market? (iii) Is there any profitable trading strategy on the Indian stock market? While exploring these issues, the study delves deeper, breaking the whole period down into two sub-periods, before the crisis of 2008 and after the crisis. The purpose of this division is to determine whether there has been any discernible change in the market structure since the shock.