Momentum Effect, Value Effect, Risk Premium and Predictability of Stock Returns - A Study on Indian Market

Asian Economic and Financial Review

Arindam Banerjee^1¹ 

[1] Asst. Professor Birla Institute of Management Technology, Greater Noida. India Asst. Professor National Institute of Technology, Durgapur. India Associate Professor National Institute of Technology, Durgapur. India^1

关键词: Value effect;    Momentum effect;    Risk premium;    Behavioral finance;    Stock returns;    Multiple discriminant analysis;    Predictability.;   

DOI  :  10.18488/journal.aefr.2018.85.669.681

学科分类：社会科学、人文和艺术（综合）

来源: Asian Economic and Social Society

【 摘 要 】

Efficient market hypothesis (EMH), one of the central pillars of modern financial theories, often fails to explain the ?financial anomalies?. One fatal challenge of EMH probably comes from the theoretical assumption of ?rational man?. According to EMH, the fully rational investor may change his demand for financial assets on the basis of available information. According to EMH, at any given point of time, the stock price should reflect all the available information, and predictability of stock returns should be impossible. However, the literature shows ample evidence of abnormal returns related to firm and market specific attributes. In financial literature, these variations are often termed as ?financial anomalies?. Within the framework of behavioural finance, there are research results that contain evidence on predictability of future stock market returns based on financial anomalies (Stanivuk et al., 2012). Value effect and momentum effect are the two prominent financial anomalies (Ho, 2012). This paper explores the predictability of Indian stock market returns using multiple discriminant analysis. Our result shows that the risk premium, momentum and value effect may have significant power for predicting the Indian stock market returns. The validity test of the model also corroborates the impact of financial anomalies over predictability of stock returns.

【 授权许可】

CC BY