Asian Journal of Management

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Long Run Behavior of Equity Returns: An Exploration of Indian Experience


Affiliations
1 Department of Commerce and Management Studies, Government College, Thrissur, Kerala, 680014, India
2 Department of Applied Economics, Cochin University of Science and Technology, Kerala, India
     

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The absence of information efficiency in a market signals the possibility of abnormal returns to investors. Understanding the pattern of past price changes or assessing the strength of fundamentals can do this for investors.By using Indian data for the period of 2000-2010 this paper first explores the long run behavior of stock returns and then investigates the explanatory power of past price changes in predicting future asset returns. Binomial and Runs tests provide the conclusive evidence for the non-random behavior of stock returns. Auto Correlation Function and Ljung- Box Q-statistic find the forecasts of future returns based on simply extrapolating the historical stock prices are dubious.The findings of the study propose chances for investors in Indian market to earn extra returns by pursuing fundamental approach to stock valuation.
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  • Long Run Behavior of Equity Returns: An Exploration of Indian Experience

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Authors

T. G. Saji
Department of Commerce and Management Studies, Government College, Thrissur, Kerala, 680014, India
S. Harikumar
Department of Applied Economics, Cochin University of Science and Technology, Kerala, India

Abstract


The absence of information efficiency in a market signals the possibility of abnormal returns to investors. Understanding the pattern of past price changes or assessing the strength of fundamentals can do this for investors.By using Indian data for the period of 2000-2010 this paper first explores the long run behavior of stock returns and then investigates the explanatory power of past price changes in predicting future asset returns. Binomial and Runs tests provide the conclusive evidence for the non-random behavior of stock returns. Auto Correlation Function and Ljung- Box Q-statistic find the forecasts of future returns based on simply extrapolating the historical stock prices are dubious.The findings of the study propose chances for investors in Indian market to earn extra returns by pursuing fundamental approach to stock valuation.

References