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Volatility effect and the role of firm quality factor in returns: Evidence from the Indian stock market

Asheesh Pandey and  Sanjay Sehgal

IIMB Management Review, Volume 29, Issue 1, March 2017

In the study, we examine if there are any volatility patterns in stock returns for India. Data are employed for 493 companies that form part of BSE 500 index from March 2000 to November 2013. Unlike previous international evidence, no volatility anomaly is observed. Consistent with theory, high volatility stocks significantly outperform low volatility stocks. Alternative risk models fail to explain the volatility effect. Consistent with prior research, we confirm the role of firm quality factor in explaining these volatility patterns. Cash flow variability seems to be a more appropriate measure of firm quality compared to profitability.

URL: http://www.sciencedirect.com/science/journal/09703896

Courtesy: Sciencedirect

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