SYNOPSIS

ON THE TOPIC
TO STUDY THE INVESTING BEHAVIOR OF INVESTORS (WITH SPECIAL REFERENCE TO CALENDER ANOMALIES

SUBMITTED TO SUBMITTED BY MISS. Aditi Ohri PAYAL MAHAJAN

GLOBAL INSTITUTES OF MANAGEMENT AND EMERGING TECHNOLOGIES

MEANING OF STOCK EXCHANGE
A stock exchange, share market or bourse is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).

Functions of Stock Exchange
Stock exchange is established into the main purpose of providing a market place for the members to deal in securities under well laid down regulations and to protect the interest of the investors. The main functions of stock exchange are;  It brings the companies and investors together so that the investors can put risk capital into companies and thus, companies can use the capital.  It provides an orderly regulated market for securities.  It provides continuous, ready and open market for selling and buying securities.  It promotes savings and investment in the economy by attracting funds from the investors.  It facilitates take over by means of acquiring majority of shares traded on the stock market.

because there are three calendar days between the market closing of Friday. and the market closing of Monday. The calendar effects that have attracted more interested. But even if we admit that the flow of information is negligible on weekends. Other calendar effects that have been studied include day of the month effects. revealed in the fact that daily returns tend to be higher in this month. than in other months of the year. and holiday effects. On the other hand. CALENDAR EFFECTS IN STOCK MARKETS Several empirical studies have studied the phenomena of calendar effects in stock markets. month effects are not necessarily inconsistent with market efficiency. Monday returns should at least be as high as other weekday returns. where we observe the behavior of returns after holidays (no trading days). The study of calendar effects is relevant. or some.  It also allows the companies to float their shares in the market. It acts as a clearing house of business information. In any case. of the months of the year. fueled by favorable evidence. where higher returns tend to be concentrated in specific periods of the month. and prices reflect all information.  It motivates the managers of well reputed companies. and sometimes Friday returns are higher. we would expect to find that Monday returns are around three times higher than other weekday returns. none of these two hypotheses is confirmed in the US market. and (ii) the January effect.  It induces the managers to improve performance for converting non-specified shares into specified shares in the exchange. in financial economics. to retain their shares in ‘A’ group. where Monday returns tend to be lower than on other days of the week. because it is possible that the flow of information to the markets is specially concentrated in one. are: (i) the weekend effect. or in several other markets. However. where returns tend to show higher (or lower) than average returns is specific calendar periods. If the flow of information is continuous. to improve performance. Monday returns are in fact lower than other weekday returns. because some types of calendar effects are inconsistent with the efficient market hypothesis.  It enables the investors to evaluate the net worth of their holdings. there is no strong evidence that January higher returns are caused by a relatively higher .

financial counselors. and so calendar effects remain at odds with both the hypothesis of: (i) market efficiency and (ii) rational behavior of investors. and looking for a big opportunity to strike it rich. in European stock markets. and we propose a simpler model specification that overcomes those shortcomings. and time-dependent variance of the residuals of linear regressions. This is important to know. First. I realized that my key to . This paper looks exclusively at day of the week effects and month of the year effects. like psychological traits of investors. Five. including the bootstrap approach and the GARCH model. like those related to fiscal motivations or market structure. allow for country-specific calendar effects. because some possible explanations for calendar effects. I spent a couple years chasing the next big investment craze. It makes several contributions to the literature on calendar effects in stock market returns. allowing us to conclude if calendar effects are across-the-board effects in that region or only country-specific effects. and once the market took a down-turn. we examine the time-stability of the most significant calendar effects in the period under study. there was no “magic bullet” that allowed to get-rich-quick. from 1994 to 2007. adding statistical robustness to our results. and all those interested in developing profitable trading strategies. The Three Types of Investors As should be obvious from my personal investing journey. we discuss the shortcomings of previously used models for the detection of calendar effects. we use observations from a set of seventeen countries of the same economic region. I progressed through multiple stages of financial wisdom before figuring out the key to attaining wealth: For the first several years. Fourth. we recognize non-normality and autocorrelation in stock market returns. while other explanations. we use data from recent years. I hoarded cash and diversified my investments to ensure a consistent return on my capital. Unfortunately.flux of good news. Third. market professionals and investors in general. The study of calendar effects is also relevant for financial managers. and apply appropriate statistical methodologies to tackle these problems. regardless of how small that return might have been. thus adding and updating international evidence on calendar effects. Finally. Second. Once I realized that I wasn’t going to be able to achieve my financial dreams strictly through diversification. I found myself back at square one. on West and Central European stock markets. would imply across-the-board effects.

financial independence was to focus my energies on a single investing area. mutual funds. and in return. The following are the three types of investors most commonly seen: Savers Savers are those people who spend the majority of their life slowly growing their “nest egg” in order to ensure a comfortable retirement. Because their rate of return is generally consistent. Others are luckier. a Saver’s primary mechanism to achieve wealth is to invest and wait. they either entrust others to dictate their investments (money managers or financial planners) or they simply diversify their investments across a number of different asset classes (they create “a diversified portfolio”). They start saving in their 20’s and 30’s by putting money in 401(k) accounts. Savers explicitly choose not to focus their time on investing or investment strategy. While people have been successful at each stage of investing. and other diversified investments. Some. you can better target the type of investor you want to be. The bulk of Savers are investing for long-term financial security and retirement. slowly evolve from one stage to another. most successful investors go through these same stages before they become successful as well. they have enough to retire on. and ultimately generate a consistent annual return in the range of 3-8% (after adjusting for inflation). Savers rely in a single force to grow their capital: time. hoping to find the “golden ticket” to success. And others forever bounce back and forth between stages. albeit with slightly higher returns. For those who create a diversified portfolio. and quickly find their investing niche. Savers seek low-risk growth of their capital. . their primary investing strategy is to hedge each of their investments with other “noncorrelated” investments. and in 30 or 40 years. Those who entrust their money to professional money managers generally get the same level of diversification. In my experience. And by understanding the different stages. bypassing the intermediate stages of growth. and the same 3-8% returns (minus the management fees). In fact. what the Saver is doing is really no different than putting their money in a Certificate of Deposit. are willing to accept a relatively low rate of return. While there is certainly nothing wrong with striving for consistent returns. like me. Savers often use The Rule of 72 to calculate long-term investment growth and plan their retirement. one stage stands out for those who aspire to attain wealth. and devote my time and energy to creating and fulfilling my strategic investing vision.

Like the Speculator. and other investing fees. often times they don’t. They’re not scared to throw some money in an Options account and try their hand at derivatives trading. Or perhaps they hear about all the real estate investors who have made a bundle flipping houses. Speculators choose to take control of their investments. and taking a chance on getting rich. it’s all about being in the right place at the right time. it also generally means 30-50 years of work to get to that point. “hot tips”. and a variety of other asset categories. While the Speculator recognizes the potential gains from smart investing. Perhaps they get a hot stock tip and try to cash in on the next Google. he doesn’t always invest smart. Speculators are happy to forgo the relatively low returns of a diversified portfolio in order to try to achieve the much higher returns of targeted investments. bonds. Instead of just spreading their money across stock funds. it’s education and experience. Speculators are always looking for an investing edge. If today’s investment doesn’t work out. so they go out and buy the first run-down house they see. and not rely solely on “time” to get to the point of financial independence. and are willing to do or try anything to get those returns. The . But. he may show little or no profit after paying brokerage commissions. While the Speculator may have enough luck and skill to be a successful investor. real estate funds. the Active Investor’s biggest rival is the “vigorish. unlike the Speculator.While passive investing is an almost surefire path to a comfortable retirement. the Specialist understands that the key to successful investing isn’t luck. He is very much a gambler. or run out and buy a bunch of inventory from a wholesaler they know and open up an eBay selling account. or “being in the right place at the right time”. for them. and while sometimes those gambles pay off. Specialists The third type of investor is the Specialist. the Specialist realizes that there is a more powerful investing strategy than just diversifying across a range of asset classes. there will always be another one tomorrow. Speculators are always looking for the next great investment. Speculators Unlike Savers. And just like a gambler.” the commissions and fees he pays to enter and exit all his investments. Speculators recognize that they can have higher returns than Savers.

or in-between. real estate and collectables). Yet.e. and market strategists are all overtaking each other to get investors' attention. Unlike the Speculator who looks for the next “hot” investing area and the next hot market. financial writers. cold. individual investors. Some Specialists deal in paper assets. the Specialist has a plan. and the winners will generally be those who are most prepared. The Specialist generally picks a single investing area. Stock prices skyrocket with little reason. In fact. only folly.Specialist recognizes that investing is no different than any other competitive endeavor — there will be winners and there will be losers. having a plan is the key difference between the Specialist and either the Saver or the Speculator. The following deals with some of the risks of the financial sector in general and the stock market in particular. Sometimes there appears to be no rhyme or reason to the market. Stock prices fluctuate widely.. i. the Specialist can make money in his chosen investment area during any market — hot. but also the economy on a large scale. This is something that could affect not only the individual investor or household. With each passing year. and people who have turned to investing for their children's education and their own retirement become frightened. and instead of just entering and exiting investments. immersed in chat rooms and message boards. The Specialist knows his investment area inside and out. This is certainly more important now that so many newcomers have entered the stock market. Television commentators. some deal in real estate. are exchanging questionable and often misleading tips. or have acquired other 'risky' investments (such as 'investment' property. investors find it increasingly difficult to profit. the noise level in the stock market rises. INDIVIDUAL INVESTORS. AND FINANCIAL RISK Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. despite all this available information. in marked contrast to the stability of (government insured) bank deposits or bonds. The plan is the blueprint for achieve investment success. then plummet just as quickly. THE STOCK MARKET. This is a quote from the preface to a published biography about the long-term value-oriented . and becomes an expert in that area. and with it. the Specialist can achieve huge returns with relatively low risk. and some start businesses. analysts. At the same time.

You should always keep in mind that it is not the stock but the market capitalization of the company that determines the worth of the company. you should be very careful when you decide to invest in the Indian stock market. it can ruin the prospect of a stock. The stock becomes undervalued if the price of the share is much lower than the earnings of a company. so in that case you need to know the functioning of the market. But if this is .stock investor Warren Buffett. So market cap is another factor that affects stock price. So let us discuss about the different factors affecting the stock price in this article. So. In this case you should remember that news should not matter much but the overall performance of the company matters more. The trend of the stock market trading directly affects the price. EARNING/PRICE RATIO Another important factor affecting stock price is the earning/price ratio. On the other hand. The quote illustrates some of what has been happening in the stock market during the end of the 20th century and the beginning of the 21st century. DEMAND AND SUPPLY One of the major factors affecting stock price is demand and supply. As you know that you cannot predict the stock market. MAJOR FACTORS THAT AFFECT STOCK PRICE IN STOCK MARKET GLOBALLY When you wish to invest in the stock market. When people are buying more stocks.000 from seven limited partners consisting of Buffett's family and friends. then you should always make a good survey of the whole market. Over the years he has built himself a multi-billion-dollar fortune. then the price of that particular stock increases.[4] Buffett began his career with $100. On the other hand if people are selling more stocks. when there is a negative press release. This gives you a fair idea of a company’s share price when it is compared to its earnings. There are some major factors that affect stock price. and $105. NEWS When you get positive news about a company then it can increase the buying interest in the market. So. news is another factor affecting stock price. Never try to guess the worth of a company simply by comparing the price of the stock. then the price of that stock falls.

and choose which one to trade depending upon the current condition of the market. counter-trend trades. buying if the price is moving up). DAY TRADING Day trading (and trading in general) is the buying and selling of various financial instruments.e. Day trading differs slightly from other styles of trading in that positions are rarely (if ever) held overnight or when the market being traded is closed. The stock becomes overvalued if the price is much higher than the actual earning. Day trading also has different types of trade. depending upon how the trade is doing (whether it is in profit). Trend trades are trades in the direction of the current price movement (i. there are other variances between day traders. The styles range from short term trading such as scalping where positions are only held for a few seconds or minutes. and counter-trend trades are trades against the direction of the current price movement (i. and ranging trades. with the goal of making a profit from the difference between the buying price and the selling price. to longer term swing and position trading where a position may be held throughout the trading day. But with recent technology such as the Internet. Day trading was originally only available to financial companies (such as banks). individual traders now have direct access to the same exchanges and market data. but some traders will take different types. because only they had access to the exchanges and market data. but most traders will choose a single style and only take that type of trade. and stocks. such as trend trades.the case. while others prefer to wait for what they consider the best conditions for their trade. Some day traders will trade multiple styles. and are used when the market is moving sideways. Ranging trades are trades that go back and forth between two prices. TRADING STYLES There are several different styles of day trading. Most day traders will choose a single type of trade. currencies. and can make the same trades at very low cost. such as futures. options. suited to different day trader personalities. In addition to the style and type of day trading. Some day traders like to make many trades throughout the trading day. these are the major factors that affect stock price. and perhaps only make one trade . then it has the potential to rise in the near future. and can have open positions for anywhere from a few minutes to a few hours. Most day trading systems have a lot of flexibility. selling if the price is moving up).e. So.

Brain scans show that there are two parts of the human brain operating in radically different ways.per day. determined that investors contributed more than $300 billion of new money to equity mutual funds during the six-year period from 2002 to 2007. 2009. . Some have made the situation worse by buying and selling at the wrong times. much of it near market highs. For most people. The prefrontal cortex is the rational. the opportunities for higher returns are greatest. According to the Hulbert Financial Digest. logical thinking. and the desired goal of making a profit. on the other hand. investors redeemed more than $150 billion. our emotional brains can take over and cause us to make poor. individual investors are notoriously bad market timers. Results are scientifically confirming what behavioral finance economists have suggested for some time: people are not hard-wired to be good investors because their emotions and other "normal" reactions can overtake their ability to reason rationally and make smart decisions under certain =]\circumstances. Our emotions may tell us to pull in and avoid risk when. Under certain conditions. the total cost of this poor timing for stock fund investors was more than $42 billion for the 12 months ending May 31. The Wall Street Journal recently reported that mutual fund research firm. emotional side that often causes trouble for investors. we might consider the interesting work that is being done if the field of neuroscience. The limbic system. where researchers study the brain's response to stimuli in an attempt to better understand human decision-making. is the brain's short-term. When prices declined. are the same EMOTIONS AND HOW THEY AFFECT INVESTMENT BEHAVIOR Recent times have been difficult for investors. the trading process that is used. For example. Morningstar. as evidenced by mutual fund cash flows. Because of this and other reasons. perhaps. the normal emotional response to rising markets is to feel confident and positive. As a possible explanation of this behavior. This can lead to the desire to increase risk tolerance and purchase risky assets at potentially high prices. irrational decisions. However many trades are made. unemotional part of the brain that is used in longterm. The opposite is true after big market declines.

this fear system can be over-sensitive. The game involved a series of rounds in which players could choose whether or not to invest hypothetical money. Evolutionary biologists believe that humans developed this fear response as a survival mechanism to protect against predators. found that people with an impaired ability to experience emotions made better investment decisions in a simple investment game. the normal. This was just a simple game with imaginary money. Each round was structured to have a positive expected return on investment so that a rational player should choose to invest in every round. Imagine how this might play out more significantly in the real world with multiple sources of uncertainty and real money at stake.your brain is hard-wired to make projections based on past trends by seeking out patterns in data. researchers from Carnegie Mellon. emotional brain into overdrive. regardless of what happened in previous ones. This can be very dangerous to your financial health. unimpaired players were frequently affected by recent outcomes and were reluctant to invest after a series of losses. Turn off the investment "noise. . the Stanford. IGNORE THE RECENT PAST . Not surprisingly." have faith that markets work. This can lead to irrational choices and bad financial decisions. BE DIVERSIFIED .putting too much emphasis on short-term market movements or popular. reducing the probability that big losses will send your short-term. But in a world where we are not threatened by predators. and stay committed to your long-term objectives. and the University of Iowa. Stay focused on the long run and ignore random.a properly balanced portfolio may smooth out the ups and downs. short-term fluctuations. What can investors do to neutralize the effects of their emotions and make smarter investment decisions? Here are some suggestions: STAY DISCIPLINED . even when none exist. alarmist market forecasts might cause you to develop an irrational sense of fear. The players with impaired emotional function invested more regularly and performed better because they were less affected by fear and were more willing to take risk. causing us to react to dangers that do not actually exist.In a study published in 2005.

consistently repositioning your portfolio to target allocations is a time-tested way to keep your investment portfolio at a predetermined level of risk REASONS OF FLUCTUATIONS IN THE MARKET:• NEWS News is a big factor as one news channel is on all the time there in the office of every co.All the news related to flood and other country related stuff like wars fall under this category. * Company – News related to company. * Political – Every news related to govt. • COMPANY TARGET ROOMERS These are the part of talks that start from one office and spreads and effect the market as the most commonly used roomer is about a company’s target in the date of today that this particular company will achieve a target of this much of price for sure. .you should develop and follow a comprehensive investment policy statement that outlines your important goals and a strategy to achieve them. any type of news it makes a big or a small effect for sure in the market on the price of related companies and that company. and the investor makes a decision on the basis of news whether to buy or sale the shares. Having a written policy makes it more likely you will follow a prudent path when your emotions tell you otherwise. REBALANCE .WRITE AN INVESTMENT POLICY STATEMENT . and political parties such as elections and the name for the nominations etc. News are broadly categorized in three parts * Country .

• SEASON EFFECT How far which country is having what season like the last thirteen monsoons in India were good that also keeps the market graph high.• WEBSITES There are certain websites that provide the clients with good tips of the market and such sites are very much responsible for making fluctuations in prices as the clients follow such tips many a times. • Best time for trading is from 9:55 am till 11:15 am and from 2:45 pm till 3:30 pm as at this time most of the trading is done in the market. • MONDAY IS DONE-DAY Another perception of the investors in the market that Monday is not that good for trading as much are the other days as most of the selling are done on Friday because after Friday the market is closed for two days and one might be in need of money in these two days that’s why on Monday the market graph generally opens low. • INFLATION It is another big factor as the inflation raises the graph of the company rises because the prices of every thing are increasing. .

• WARS ARE GOOD FOR THE MARKET .• THE JANUARY EFFECT The market graph in January in rest of the world is very high as the investors are back in the market after a long relaxing rest of X-mas holidays but in India the time is of recession period after depression in the market because the graph is low in December as all the foreign investors take out their money from the market.

releases the pressure from the market as the opposition doesn’t hold a strong position in the market and there is no pressure on the govt. • HUMAN SENTIMENT PLAYS THE MOST IMPORTANT ROLE Human sentiments plays the most important role because it is the perception of the buyer that makes him react to news in the market and that reaction in turns builds the market. is of kargil war reason being that the news of war makes an investor take money out of the market and market falls prices are really low as the war starts which makes the investor feels that it is good time for buying and they start investing back which builds sudden pressure on the market first is the pressure due to war then the pressure of heavy investment graph goes high. • DEMAND AND SUPPLY FACTOR Then the juice to all the fruits no matter whatever the reason is there for the fluctuation it in turns result in demand and supply factor only. .Wars are bad for the peace but has proven good for the market as the market graph has always shown a raise at the time of wars recent e. • • ARBITRAGE AND HEDGING AFTER MAY GOOD BUYING AND AFTER DIWALI GOOD SELLING This is the trend in India being followed since many years the trend in India of buying and selling has been like this since many years. IS NOT GOOD FOR THE MARKET Full majority govt. • FULL MAJORITY GOVT. and the ruling party acts like a dictator.g.

FUNDAMENTAL APPROACH: In this approach the investor is concerned with the intrinsic value of the investment instrument. which would also mean a higher rate of return on our investments. industry and company. However. We as fundamental investors can achieve superior results by buying undervalued securities and selling overvalued securities. All investment strategies can be broadly classified under 4 approaches. which are different from their intrinsic values. At any point in time. There is an intrinsic value of a security. sometime in the future the current market price would become the same as its intrinsic value. This mood would swing and oscillate between the two extremes of “greed” and “fear”. Given below are the basic rules followed by the fundamental investor. which in turn is dependent on the underlying economic factors. which are explained below. PSYCHOLOGICAL APPROACH: The psychological investor would base his investment decision on the premise that stock prices are guided by emotions and not reason. And when “fear” takes over stock prices get depressed to lower than lower levels.INVESTMENT APPROACHES OF INVESTORS As investors we would have diverse investment strategies with the primary aim to achieve superior performance. This intrinsic value can be ascertained by an in-depth analysis of the fundamental or economic factors related to an economy. . many securities have current market prices. When “greed” has the lead stock prices tend to achieve dizzy heights. This would imply that the stock prices are influenced by the prevalent mood of the investors.

This approach is also called “Castle-inthe-air” theory. market breadth analysis amongst others. This would mean "Current market price = Intrinsic value". In technical analysis the basic premise is that price movement of stocks have certain persistent and recurring patterns.As psychic values seem to be more important than intrinsic values. In the securities market there is a positive and linear relationship between risk and return. with a view to study the internal market data. Stock prices behave in a random fashion and successive price changes are independent of each other. moving average analysis. The basic rules are: The stock markets are efficient and react rationally and fast to the information flow over time. Technical analysts use many tools like bar charts. present price behavior can not predict future price behavior. Thus. towards developing trading rules to make profits. In this approach the investor uses some tools of technical analysis. That is the expected return from a security has a linear relationship with the systemic or nondiversifiable risk of the market. it is suggested that it would be more profitable to analyze investor behaviour as the market is swept by optimism and pessimism. So. the current market price would reflect its intrinsic value at all times. Which seem to alternate one after the other. ACADEMIC APPROACH: Over the years. . which can be derived from market trading data. point and figure charts. the academics have studied many aspects of the securities market and have developed advanced methods of analysis.

Agrawal and Tandon (1994) find significantly negative returns on Monday in nine countries and on Tuesday in eight countries. Dhillon and Ramirez (1999) document a November effect . Some of the main anomalies that have been identified are as follows: A. would be to buy stocks on Monday and sell them on Friday. Steeley (2001) finds that the weekend effect in the UK has disappeared in the 1990s. Later studies document the effect persists in more recent years: Bhardwaj and Brooks (1992) for 1977-1986 and Eleswarapu and Reinganum (1993) for 1961-1990. Taken together.LITERATURE REVIEW Market Anomalies The EMH became controversial especially after the detection of certain anomalies in the capital markets. Maxwell (1998) shows that the bond market effect is strong for non-investment grade bonds. which would be profitable in this case.42 percent for the other months. 1983). their results support a tax-loss selling explanation of the effect. More recently. A trading strategy. The effect has been found to be present in other countries as well (Gultekin and Gultekin. They also find that the January effect is stronger since 1986. Kamara (1997) shows that the S&P 500 has no significant Monday effect after April 1982.S. However their data do not extend beyond 1987. yet large and positive returns on Friday in 17 of the 18 countries studied. but not for investment grade bonds. they find that the average return for the month of January was 3. The Weekend Effect (or Monday Effect): French (1980) analyzes daily returns of stocks for the period 1953-1977 and finds that there is a tendency for returns to be negative on Mondays whereas they are positive on the other days of the week. which is observed only after the Tax Reform Act of 1986. The January Effect: Rozeff and Kinney (1976) were the first to document evidence of higher mean returns in January as compared to other months. Internationally. yet he finds the Monday effect undiminished from 1962-1993 for a portfolio of smaller U. The January effect has also been documented for bonds by Chang and Pinegar (1986). B. stocks. Bhabra. He notes that these negative returns are "caused only by the weekend effect and not by a general closed-market effect". Using NYSE stocks for the period 19041974.48 percent as compared to only . .

E. Cadsby and Ratner (1992) find similar turn of month effects in some countries and not in others. If the market were efficient. one would expect the prices of stocks of these companies to go up to a level where the risk adjusted returns to future investors would be normal. Supporting evidence is provided by Reinganum (1981) who reports that the risk adjusted annual return of small firms was greater than 20 percent. Ariel (1990). and Cadsby and Ratner (1992) all provide evidence to show that returns are. Dechow. Lakonishok and Smidt (1988).S. Hensel and Ziemba (1996) and Kunkel and Compton (1998) show how abnormal returns can be earned by exploiting this anomaly. But this did not happen. His analysis of the 1936-1975 period reveals that excess returns would have been earned by holding stocks of low capitalization companies. An investor who held the low P/E ratio portfolio earned higher returns than an investor who held the entire sample of stocks. Ariel (1987) shows that returns tend to be higher on the last day of the month. Small Firm Effect: Banz (1981) published one of the earliest articles on the 'small-firm effect' which is also known as the 'size-effect'. on average. Hutton. D. Meulbroek and Sloan (2001) document that short-sellers position themselves in stocks of firms with low earnings to price ratios since they are known to have lower future returns. The latter paper shows this for countries other than the U. Other Seasonal Effects: Holiday and turn of the month effects have been well documented over time and across countries. Ziemba (1991) finds evidence of a turn of month effect for Japan when turn of month is defined as the last five and first two trading days of the month.C. P/E Ratio Effect: Sanjoy Basu (1977) shows that stocks of companies with low P/E ratios earned a premium for investors during the period 1957-1971. Brockman and Michayluk (1998) describe the pre-holiday effect as one of the oldest and most consistent of all seasonal regularities. These results also contradict the EMH. Fama and French (1995) find that market and size factors in earnings help explain market and size factors in returns. than on other trading days. Lakonishok and Smidt (1988) show that US stock returns are significantly higher at the turn of the month. Campbell and Shiller (1988b) show P/E ratios have reliable forecast power. . higher the day before a holiday. defined as the last and first three trading days of the month.

thus challenging the EMH. Pricing of Closed-end Funds: The Investment Company Act of 1940 regards all investment funds that do not continuously issue and redeem their shares as closed-end funds. H. DeBondt and Thaler (1985. They report positive (negative) estimated abnormal stock returns for portfolios that previously generated inferior (superior) stock price and earning performance. Over a five year period starting from 1965. Over/Under Reaction of Stock Prices to Earnings Announcements: There is substantial documented evidence on both over and under-reaction to earnings announcements. inappropriate adjustment for risk. This could be construed as the prior period stock price behavior overreacting to earnings developments (Bernard. 1987) present evidence that is consistent with stock prices overreacting to current changes in earnings. Since in an efficient market only information should change prices. G. investors wishing to buy or sell shares of a closed-end funds must do so in the . Standard & Poor’s (S&P) Index effect: Harris and Gurel (1986) and Shleifer (1986) find a surprising increase in share prices (up to 3 percent) on the announcement of a stock's inclusion into the S&P 500 index. closed-end funds do not stand ready to sell or repurchase their securities at the net asset value per share. Stickel. Unlike openend funds. Ou and Penman (1989) also argue that the market underutilizes financial statement information. the evidence suggests that information is not impounded in prices instantaneously as the EMH would predict. [4] They float a fixed number of shares in an initial public offering and after that. [3] I. or transaction costs. Thus. 1985) find positive risk-adjusted abnormal (above average) returns using value line rankings to form trading strategies. Bernard (1993) further notes that such anomalies are not due to research design flaws. Value-Line Enigma: The Value-Line organization divides the firm into five groups and ranks them according to their estimated performance based on publicly available information. 1993). and being completed over a period of at least six months.g. the positive stock price reaction appears to be contrary to the EMH because there is no new information about the firm other than its inclusion in the index. That is. Several researchers (e. returns to investors correspond to the rankings given to firms.F. higher ranking firms earned higher returns. Such interpretation has been challenged by Zarowin (1989) but is supported by DeBondt and Thaler (1990). Bernard (1993) provides evidence that is consistent with the initial reaction being too small.

Cornell and Green [1991]. Shleifer and Thaler. As Philip Schaeffer of Robert Fleming Inc. [8] Investors have always sought superior returns in the securities market and vulture investors have attracted a substantial amount of risk-oriented money by offering the possibility of high returns by exploiting the apparent pricing inefficiencies or anomalies in the market for distressed securities. J. puts it: "Returns are attractive because of market's abundant inefficiencies. Brickley and Schallheim. As Laderman notes in Business Week (March 1. experience and knowledge of the bankruptcy process. "America’s financial markets are the most efficient in the world.secondary market. Malkiel (1977) argues that the market valuation of closed-end investment company shares reflects mispricing. the funds have been shown to trade at a discount relative to their net asset values (See Malkiel. the shares of Continental Airlines continued to trade on the AMEX at or about $1. Distressed investing requires skills involving bankruptcy law. [7] For example. Lee. Investors who find themselves owners of distressed securities do not understand or want to participate in the market and frequently sell at prices substantially below the investments' cost.50 per share even after the company had negotiated a plan with its creditors that would provide no distribution to the pre-petition equity holders (WSJ. Consequently. Weinstein [1987]. 1992). Fridson and Cherry [1990].g. Buell [1992]) the popular press has frequently conjectured that the stock pricing may be inefficient during the bankruptcy period. Eberhart and Sweeney [1992]. The existence of discounts clearly contradicts the value additivity principle of efficient and frictionless capital markets. the relatively small number of experienced distressed ." [Malkiel. 1991). Altman and Eberhart [1994]. Ma and Weed [1986]. 1977. and personal contacts. the average discount on closed-end funds ranged between 5 to 20 percent. 847] In general. Keim and Patel [1991]. Between 1970 and 1990. But there’s one corner where pockets of inefficiency still exist: closed-end funds". "The pricing of closed-end funds does then seem to provide an illustration of market imperfection in capital-asset pricing. As he notes. 1985. [6] Reports from the popular press have also commented on mispricing in the closed-end fund market. 1993). Blume. [5] The prices in the secondary market are dictated by the market forces of demand and supply which may not be directly linked to the fund’s fundamental or net asset value. The Distressed Securities Market: While the academic literature largely suggests that stocks in the distressed securities market are efficiently priced (e.

.e. Saunders (1993) shows that the New York Stock Exchange index tends to be negative when it is cloudy. with the recognition that nature has somehow violated the paradigm induced expectations.. 52] . [Roll. "Discovery commences with the awareness of anomaly. Hirshleifer and Shumway (2001) analyze data for 26 countries from 1982-1997 and find that stock market returns are positively correlated with sunshine in almost all of the countries studied. 1984] [9] These anomalies have led researchers to question the EMH and to investigate alternate modes of theorizing market behavior. i. The Weather: Few would argue that sunshine puts people in a good mood.security investors have a significant advantage over other investors who do not have such expertise. As he states.. It clearly suggests that information alone is not moving the prices. Interestingly. Such a development is consistent with Kuhn's (1970) route for progress in knowledge. More recently. 1991] K. People in good moods make more optimistic choices and judgments." [Kuhn. [Wall Street Journal. they find that snow and rain have no predictive power! These phenomena have been rightly referred to as anomalies because they cannot be explained within the existing paradigm of EMH. knowledge and experience".

To find out the basic purpose of investors for investing in different investment. 2. 6. 3. To find out the perception of investors about Risk and Return related to different alternatives in stock market.OBJECTIVE OF THE STUDY The basic objective of the study is to find out different perceptions of investors related to different investment alternatives in share markets. 5. . To make the investor aware about the factors which may affect their investment. 4. Following are the sub-objectives of my basic objective. 1. To know the effect of these fluctuation on the Indian economy. To forecast or predict the future trend of stock market which helps in investment. To find out the preferred attributes of different alternatives on which investor’s are willing to invest.

They have some weaknesses. fun. This seems too obvious to fit realities fully. search for experience and knowledge and myriads of other goals. just "noise" (see that word)? There are still many things to observe and study in those fields. and more generally in what social sciences see as the reasons.LIMITATIONS OF STUDY BF/BE are still not considered fully scientific and practical fields. This contributes to consider as a "market anomaly" any divergence from those two criteria. Maybe we will never end to learn more and more about the human being and about human societies. other than helping to find the range of possible scenarios between which deciders might choose.. * Reactions to events / information (underreaction.. power. Therapeutic purpose or witch hunting? Those references limit the main criteria of "normality" in finance (and economics) to expected monetary returns and risks. We can have doubts that this would ever be a fully predictive science or technique (uncertainties will not disappear).More important. such as their overemphasis on: * Anomalies compared to standard finance. What about the observation of the players' behavior when there is a lack of new relevant events. processes and effects of what is called "decision making". overreaction. human challenge. BF/BE concepts refer quasi-exclusively to mental deviations.). a quest that started thousands of years ago! . that might also have their degree of legitimacy? Such "soft" returns are empathy.What about uncertainty as a broader concept than statistical risk? . . what about non monetary returns.

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