Open Access
Article
SciPap-1490
Size, Value Effects and the Explanatory Power of Pricing Models: Evidence From BSE Listed Indian Industries
1 Finance, Christ University, Bangalore India, Bangalore 560074, India
2 Finance, Christ University, Mysore Road, Kengeri Campus Bangalore India, Bangalore 560074, India
3 Finance, Christ University, Main Campus, Bangalore India, Bangalore 560029, India
* Authors to whom correspondence should be addressed.
Abstract: The firm size and value anomalies are the global-level counterpart for explaining the cross-sectional variations of equity returns. The purpose of this paper is to examine the size, value effects and the 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 the 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 statistic, 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 by 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 the industries tend to be expected reasonably stable returns and conceivably predictable; findings of this study contribute to the existing literature on assets pricing and portfolio management to the emerging markets.
Keywords: Asset Pricing, Portfolio Management, Stock Market, Cross-Sectional Models, Time-Series Models, India
JEL classification: C21 - Cross-Sectional Models • Spatial Models • Treatment Effect Models • Quantile Regressions, C22 - Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes, G11 - Portfolio Choice • Investment Decisions, G12 - Asset Pricing • Trading Volume • Bond Interest Rates
Received: 2 March 2022 / Revised: 8 November 2022 / Accepted: 10 November 2022 / Published: 22 November 2022
