Summer Internship Project

on
A Comparative Study of Investment and Trading
Focusing on Indian Stock Market

at JMARATHON

By
J. KALPANA (18107)

Under the Guidance of

FACULTY MENTOR :
CORPORATE MENTOR :

Institute of Computers and Business Management

(May - June 2019)
 THE LITERATURE REVIEW

1. Title of the Research Report

“AN EVALUATING STUDY OF INDIAN STOCK MARKET SCENARIO WITH

REFERENCE TO ITS GROWTH AND INCEPTION TREND ATTEMPTED BY
INDIAN INVESTORS: RELATION WITH LPG”

Author and Journal Name

MADHVI (ASSISTANT PROFESSOR, S.D INSTITUTE OF MANAGEMENT AND
TECHNOLOGY, JAGADHRI)

Year of Publication: 2014

Review:

The Behavior of the stock market is always matter of study and which have
created an interest in researchers to explores more and more affecting areas
towards it. Related study found stock market very volatile and fluctuating
with respect to risk and return relationship. In stock market incomplete
information leads to bad return whereas perfection and alertness leads to
good and stable return.

It was found that higher the risk higher the return and vice versa. LPG and
steps taken by the government, RBI has surely given the direction as well as
motivation to investor to invest more and more in capital market which has
definitely improved the growth of Indian economy. There are a lot of risk
management alternatives available to the investors with which help risk can
be minimized and return can be increase. Future of stock market is found
very bright in upcoming years due to competitive strength.
2. Title of the Research Report

“INVESTMENT AND TRADING STRATEGIES IN INDIAN STOCK

MARKET”

Author and Journal Name

Shahid Ashraf, Mirza Allim Baig
(Department of Economics, Jamia Millia Islamia (Central University), Jamia Nagar,
New Delhi)

Year of Publication: 2015

Review:

A general perceived notion is that higher you take the risk, higher you get the
expected return (CAPM model). The model suggests that an investor’s cost
of equity capital is determined by beta. Looking at beta of the stock, if one is
interested for higher return, he has to choose the stock with high beta.

One of the better-known investment strategies is buy and hold. It is a long-

term investment strategy based on the concept that in the long run equity
market gives a good rate of return despite periods of volatility or decline. A
purely passive variant of this strategy is indexing where an investor buys a
small proportion of all the stocks in a market index such as Nifty-500 or more
likely in a mutual fund ETF. On the other hand, market timing, an active
investment strategy is to enter the market on the lows and sell on the highs
to maximize returns. Trading strategy attempts to predict future market
movements based on an outlook of market or economic conditions resulting
from technical or fundamental analysis. There is no clear evidence in the
literature whether this strategy is a viable investment strategy. Some believes
market cannot be overvalued of undervalued, the prices always exhibit
random walk behavior and hence cannot be predicted with consistency or
certainty (Efficient Market Hypothesis).
3. Title of the Research Report
“TRADING IS HAZARDOUS TO YOUR WEALTH: THE COMMON STOCK
INVESTMENT PERFORMANCE OF INDIVIDUAL INVESTORS”

Author and Journal Name

BRAD M. BARBER and TERRANCE ODEAN

Year of Publication: 2000

Review:

Author in this article compared the Trading activity with gambling. It was
said like,
To what extent may a desire to gamble account for the excessive trading we
observe? Many people appear to enjoy gambling. Some buy lottery tickets.
Others gamble at casinos. We consider two distinct aspects of gambling: risk-
seeking and entertainment. Risk-seeking is when one demonstrates a
preference for outcomes with greater variance but equal or lower expected
return. In equity markets the simplest way to increase variance without
increasing expected return is to under diversify. Excessive trading has a
related, but decidedly different, effect; it decreases expected returns without
decreasing variance. Thus risk-seeking may account for under diversification
~though under diversification could also result from simple ignorance of its
benefits!, but it does not explain excessive trading.
A second aspect of gambling is the entertainment derived from placing and
realizing bets. When coupled with the overconfident belief that these bets are
expected-wealth enhancing, it is easy to see that the entertainment utility of
gambling will fuel greater trading. There is also the possibility that people
may trade for entertainment while fully realizing that each trade is more
likely than not to reduce their personal future wealth.
4. Title of the Research Report

“TRADING AND UNDER DIVERSIFICATION”

Author and Journal Name

Anders Anderson

Year of Publication: 2012

Review:

Wealth is broken up into three major components: financial, real estate, and
debt. Financial wealth is, in turn, divided into bank holdings, money market
funds, bonds, stocks, equity and mixed mutual funds, other financial
instruments, capital insurance, and other financial wealth. Three wealth
measures are used: Financial wealth, risky assets, and total other income. It
is difficult to find a proper benchmark when investors hold under-diversified
portfolios. The now standard extensions of Markowitz’s (1952) single-index
model proposed by Fama and French (1992), and Carhart (1997), may fail to
capture specific preferences for, for example, skewness that may be desirable
to individual investors.
In the spirit of Grinblatt and Titman (1993), we let the investors instead
self-select a benchmark portfolio at the beginning of each month, which is
taken as given to reflect the desirable return profile. Ruling out liquidity
motives, rational investors with correct expectations of future returns should
on average only trade if deviations from the self-selected benchmarks are
profitable. Even in the presence of “mechanical” motives to trade, such as
liquidity and risk management, these costs are expected to be small. If
investors trade for liquidity reasons, most investors can either sell or buy a
mutual fund.
5. Title of the Research Report
“STOCK MARKET VOLATILITY - A STUDY OF INDIAN STOCK
MARKET”

Author and Journal Name

Sameer Yadav (Research Scholar, Department of Commerce and
Business Administration, University of Allahabad, Allahabad, Uttar
Pradesh)

Year of Publication: 2017

Review:

Stock Market is the mitigation of risk through the spreading of investments

across multiple entities, which is achieved by the pooling of a number of
small investments into a large bucket. Stock Market is the most suitable
investment for the common man as it offers an opportunity to invest in
diversified, professionally managed portfolio at a relatively low cost. The
review of literature has brought to light that enlistment of corporate-
securities in more than one stock exchange at the same time improves
liquidity of securities and functioning of stock exchange. There is existence
of wild speculation in the Indian stock market. Risk is not measurable or
quantiable. But risk is calculated on the basis of historic volatility. Stock-
market movements are largely influenced by, broad money supply, inflation,
C/D ratio and fiscal deficit apart from political stability. Low execution costs
make the derivatives especially futures, very suitable for frequent and short-
term trading to manage risk, more effectively.
6. Title of the Research Report
“A STUDY ON INVESTMENT DECISION MAKING OF INDIVIDUAL
INVESTORS TRADING AT BOMBAY STOCK EXCHANGE”

Author and Journal Name

Mr. BAIG ASIF AKHTAR (NIMS UNIVERSITY, JAIPUR RAJASTHAN)

Year of Publication: 2017

Review:
In this article the author finally concludes that,
The majority of the investors depend on recommendations, advice and
forecast by professional investors, whereas a few investors depend on
information from colleagues at work. The majority of the investors prefers
to invest in the long term and medium-term securities and a few investors
prefers to invest in short term securities. Male and Female investors from
Mumbai doesn’t have the same investment horizon. The majority of
respondents in Mumbai district depend on scientific study before taking
investment decisions. The majority of the respondents invests in less risky
securities and lesser no of respondents invest in risky securities. Female
respondents preferring less risky securities are more than male respondents,
whereas male respondents seeking risky securities are more than female
respondents. Male respondents are risker seeking than female respondents.
Majority of the married respondents take risky decisions whereas majority of
the investors who are single tend to invest in less risky decision than the
married individuals. There is very little difference between Middle and Old
age investors in terms of risk seeking attitude. However, Young age investors
have less risk seeking attitude than that of Old and middle age investors.
The investors in Mumbai had been facing various risks in their investments
like Depression phase in market, fall in Sensex/ Nifty, Inflation, Fluctuations
in Interest rates hence they should plan proper investment avenues. Overall
respondents prefer to invest in the share market, but while giving their very
few of them have opted investment in shares as their first preference due to
the volatility of market condition and lack of knowledge about market
condition.
7. Title of the Research Report
INDIAN STOCK MARKET - REVIEW OF LITERATURE
Author and Journal Name
Ms. Anju Bala (Research Scholar, Amity College of Commerce & Finance, Amity
University, Noida, India)

Year of Publication: 2013

Review:
Stock Market is the mitigation of risk through the spreading of investments
across multiple entities, which is achieved by the pooling of a number of
small investments into a large bucket. Stock Market is the most suitable
investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed portfolio at a relatively low cost. The
review of literature has brought to light that,
Enlistment of corporate securities in more than one stock exchange at the
same time improves liquidity of securities and functioning of stock
exchange- According to Gupta. There is existence of wild speculation in the
Indian stock market-According to L.C. Gupta. Risk is not measurable or
quantifiable. But risk is calculated on the basis of historic volatility -
According to Arun Jethmalani. Indian Stock Market Indices did not follow
random walk- According to Bhanu Pant and Dr. T.R. Bishnoy. Stock market
movements are largely influenced by, broad money supply, inflation, C/D
ratio and fiscal deficit apart from political stability- According to Debjit
Chakraborty. There are theories like the Fundamental analysis, Technical
analysis etc. to evaluate the securities- According to Avijit Banerjee. Low
execution costs make the derivatives especially futures, very suitable for
frequent and short-term trading to manage risk, more effectively- According
to Sunil Damodar
8. Title of the Research Report
“TO STUDY THE INVESTORS ATTITUDE TOWARDS SECURITIES
MARKET IN CHENNAI CITY”

Author and Journal Name

Subhasri Sarathy, Dr. V. Mary Diana (Assistant Professor, Department of
Commerce (Honours)

Year of Publication: 2015

Review:
Though the investors are highly educated it was revealed that investors faced
difficulties in differentiating various investment avenues also they lack in
knowledge and skills of investing. It is revealed that investors consider
family members as reliable source for information about investment and
investment avenues followed by Colleagues and Media. It is concluded that
large portion of investor’s portfolio belongs to safe investment avenues
especially in banking sector. The majority of investors was of new generation
and traded occasionally. The investors’ funds generated from out of their
own money from the monthly earnings.
Moreover, the investors gave their views regarding the stock market
investment such as number of years in stock trading, category wise stock
trading, selection of investment portfolio, mode of operation, source of
information, reason for participating stock market, sector wise stock
preference and others to improve the knowledge of the investment
strategies in the stock investment. Investors’ awareness is crucial for the
investment decision making and sustainable growth of the stock market.
Further those equity investors who were fully aware of the stock market had
more chances of holding high volume of equity investment. In all,
demographic variables like gender, age, occupation, educational
qualification, and marital status, type of family, monthly income and annual
investment of the investors had not influenced their level of awareness.
Instead of making wrong decisions regarding investment it is advisable that
investors should take help of financial planner. It is suggested to the investors
that at-least the equity portion of their portfolio must be reviewed regularly
so that if stock is not performing then necessary diversification can be made.
9. Title of the Research Report
A STUDY ON INDIAN STOCK MARKET INVESTMENT
STRATEGIES: WITH SPECIAL REFERENCE TO SELECTED
CITIES’ STOCK MARKET INVESTORS
Author and Journal Name
Ms. Jyoti (Assistant Professor, DoBA K.P. College of Management, Agra, India)
Mr. Rupendra Bansal (Lecturer Datapro, Sikkim Manipal University, India)

Year of Publishing: 2011

Review:
The study concludes that due to high volatility or high risk the investors
generally do not prefer stock market as an investment opportunity. If they
put their hard-earned money into this market, they expect a better return also.
Most of the investors belong to business and service class and prefer to invest
through indirect route i.e. mutual funds. Banking and IT sectors are most
preferred sectors for investors while many of them do not have any
preferences specifically service class. Friends and media become the major
pulling force for investors of stock market. The study of risk profile
concludes that this market is lucrative but at the same time investors remain
cautious while investing. Most of the investors put very small fraction of their
savings into this market. Mann-Whitney U test used for testing the risk
preferences amongst different age group investors concludes that risk
consideration for various investment opportunity differ amongst common
investors based on their age.
10. Title of the Research Report

“OVERCONFODENCE AND SPECULATIVE BUBBLES”

Author and Journal Name

Jose A. Scheinkman and Wei Xiong

Year of Publishing: 2003

Review:

In this paper, we provide a simple model to study bubbles and trading volume
that result from speculative trading among agents with heterogeneous beliefs.
Heterogeneous beliefs arise from the presence of overconfident agents. With
a short-sale constraint, an asset owner has an option to sell the asset to other
agents with more optimistic beliefs. Agents value this option and
consequently pay prices that exceed their own valuation of future dividends
because they believe that in the future, they will find a buyer willing to pay
even more. We solve the optimal exercise problem of an asset owner and
derive, in an almost analytic form, many of the equilibrium variables of
interest. This allows us to characterize properties of the magnitude of the
bubble, trading frequency, asset-price volatility and to show that the model
is consistent with the observation that in actual historical bubbles, volatility
and turnover are also inordinate. Theoretical results and numerical exercises
suggest that a small trading tax may be effective in reducing speculative
trading, but it may not be very effective in reducing price volatility or the
size of the bubble. Through a simple example, we also illustrate that the
bubble can cause the price of a subsidiary to be larger than that of its parent
firm, a violation of the law of one price.
11. Title of the Research Report

“EQUITY PORTFOLIO DIVERSIFICATION”

Author and Journal Name

WILLIAM N. GOETZMANN and ALOK KUMAR

Year of Publishing: 2008

Review:
There is considerable heterogeneity in the diversification choices of
individual investors. In the cross-section, older, wealthier, more experienced,
and financially sophisticated investors and those who diversify with assets
other than domestic stocks also hold relatively better diversified domestic
stock portfolios. For instance, investors who hold mutual funds and foreign
equities also hold better diversified domestic stock portfolios. In contrast,
investors whose trading decisions are consistent with stronger behavioral
biases exhibit greater under-diversification. Furthermore, investors who
overweight certain specific industries or stock characteristics such as
volatility and skewness are less diversified. In contrast, traditional factors
such as small portfolio size and high transaction costs are not strongly
correlated with investor’s diversification choices. The unexpectedly high
idiosyncratic risk in investor portfolios results in a welfare loss. Examining
the relation between diversification and performance, it was concluded that
some investors under-diversify because they might have superior private
information. However, most investors could have improved the performance
of their portfolios by simply investing in one of the many available passive
index funds.
12. Title of the Research Report
“INDIVIDUAL INVESTOR RISK AVERSION AND INVESTMENT
PORTFOLIO COMPOSITION”
Author and Journal Name
RICHARD A. COHN, WILBUR G. LEWELLEN, RONALD C. LEASE, AND
GARY G. SCHLARBAUM

Year of Publishing: 1975

Review:
A pattern of decreasing relative risk aversion as wealth increases, a higher
proportion of the total is committed by the individual involved to risky
assets-by any of four alternative measures of that proportion. Such a result
obtains even when the effects of other personal-circumstance variables are
controlled for. On the other hand, this conclusion must be advanced gingerly,
for several reasons. First, risky human wealth was neglected in the analyses,
as were some other "hidden" asset categories. Second, the tests presented are
cross-sectional ones, whereas the concept of relative risk aversion in the strict
sense refers to a particular individual. Third, the capital gains tax may serve
to lock individuals into (risky) assets which have appreciated in value,
thereby imposing some constraints on portfolio design. Fourth, the sample
data could instead be indicating that the households that tend to acquire
wealth are those that are relatively less risk averse to begin with. Fifth, it is
possible that, across households, the proportion of total assets financed by
liabilities decreases with wealth. Appearance of decreasing relative risk
aversion could conceivably disappear if net worth were used as the measure
of wealth rather than total assets.
13. Title of the Research Report
“STOCK MARKET SEASONALITY: A STUDY ON INDIAN STOCK
MARKET”
Author and Journal Name
Ash Narayan Sah (Assistant Professor University of Petroleum & Energy Studies
Gurgaon 122 001(Haryana) India)

Year of Publication:

Review:
We considered the S&P CNX Nifty as the representative of stock market in
India and tested whether seasonality is present in Nifty and Nifty Junior
returns using daily and monthly data sets. The study found that daily and
monthly seasonality are present in Nifty and Nifty Junior returns. The
analysis of stock market seasonality using daily data, we found Friday Effect
in Nifty returns while Nifty Junior returns were statistically significant on
Friday, Monday and Wednesday. In case of monthly analysis of returns, the
study found that Nifty returns were statistically significant in July,
September, December and January. In case of Nifty Junior, June and
December months were statistically significant. The results established that
the Indian stock market is not efficient and investors can improve their
returns by timing their investment.
14. Title of the Research Report
“PORTFOLIO CHOICE, TRADING, AND RETURNS IN A LARGE”

Author and Journal Name

Julie Agnew, Pierluigi Balduzzi, and Annika Sunden

Year of Publication: 2014

Review
Regression analysis shows how asset allocations and trading activity vary
with demographics and other participants characteristics: Men invest more
in equities and trade more frequently than women. Married investors invest
more aggressively and churn their portfolios more than their single
counterparts. A higher salary leads to higher equity allocations and more
active trading. Age makes investors more "cautious" in their allocations.
Older participants also trade more frequently than their younger counterparts.
Tests based on daily data show that investors in our sample tend to react with
a one-day lag to market developments. In addition, they take only partial
advantage of the wildcard option in equity-fund shares and are not able to
time the market.