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Comp.fundamental and Equity Returns Indian Markets

Comp.fundamental and Equity Returns Indian Markets

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Published by patel.prashantn8897

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Published by: patel.prashantn8897 on Nov 13, 2009
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Electronic copy available at: http://ssrn.com/abstract=1247717
Submission Cover
Australasian Finance and Banking Conference
1. Title
Company Fundamentals and Equity Returns in India
2. Primary Author
Dr. Vanita Tripathi
3. Co-Authors
(separate with comma)
4. Prizes
Select the prizes for which you would like to be considered (you may pick morethan one).(For more information about prizes please see the conference web site:www.banking.unsw.edu.au/afbc)
Prize Yes/No
Barclay's Global Investors Australia Prize Yes
BankScope Prize
 NoSirca Research Prize NoAustralian Securities Exchange Prize No
5. Journals
 Select the journals for which you would like to be considered (you may pick morethan one).
Journal Yes/No
Journal of Banking and Finance YesJournal of Financial Stability No
6. Conference Proceedings
Would you like your paper (if accepted) to be published by World Scientific Publishing CoLtd as a review volume compiling selected papers?
Electronic copy available at: http://ssrn.com/abstract=1247717
Company Fundamentals and Equity Returns in India
Author:Dr. Vanita Tripathi
Senior LecturerDepartment of commerceDelhi School of EconomicsUniversity of DelhiDelhi-110007
 9213269951Email: vtripathi@commerce.du.ac.inDate of submission: May 13,2008
JEL Classification Number: G12, G14
Keywords: Size Effect, Value effect, P/E effect, Leverage effect, CAPM, Assetpricing.
 Acknowledgements:The author is thankful to Indian Council of Social Science Research (ICSSR) New Delhi for providing financial support to carry out this study
This paper examines the relationship between four company fundamental variables (viz.market capitalization, book equity to market equity ratio, price earnings ratio and debtequity ratio) and equity returns in Indian stock market using monthly price data of a
Electronic copy available at: http://ssrn.com/abstract=1247717
3sample of 455 companies forming part of S&P CNX 500 Index over the period June 1997to June 2007. We also investigate whether the inclusion of any one or more of thesefundamental variables can better explain cross sectional variations in equity returns inIndia than the single factor CAPM. We find that market capitalization and price earningsratio have statistically significant negative relationship with equity returns while book equity to market equity ratio and debt equity ratio have statistically significant positiverelationship with equity returns in India. The investment strategies based on thesevariables produced extra risk adjusted returns over the study period. Using Davis Famaand French(2000) methodology we find that Fama-French three factor model ( based onmarket risk premium, size premium and value premium) explains cross sectionalvariations in equity returns in India in a much better way than the single factor CAPM.These results have important implications for market efficiency, asset pricing and marketmicrostructure issues in Indian stock market.

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