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Title: Investment Strategies for Abnormal Returns: An Empirical Study in Indian Stock Market
Authors: Jagirdar, Sharneet Singh
Supervisor: Gupta, Pradeep Kumar
Keywords: Contrarian Investment Strategy;Momentum Investment Strategy;Value Investment Strategy;Growth Investment Strategy;Analyst Recommendations;Overreaction Hypothesis;Efficient Market Hypothesis;Random Walk Theory;CAPM
Issue Date: 4-Nov-2023
Abstract: The objectives of the research are to study various investment strategies in the Indian Stock Market, analyze and compare the composition of stocks under different investment strategies, investigate the rank of investment strategies in terms of abnormal returns, and recommend appropriate investment strategies for abnormal returns across industries. The present study reviews more than a century of research on investment strategies in stock markets in the quest for abnormal returns. The study summarizes the previous literature of more than 100 years and identifies the conflicts and the relationships that arise from such a wide variety of existing studies. The period under study is divided into three sub-periods to bring coherence and capture the characteristics of time with a chronological study of events: Classical, Neoclassical and Modern. The classical era is dominated by CAPM, Fundamental analysis, Efficient Market Hypothesis and Random Walk Hypothesis. The neoclassical era marks the renaissance of technical analysis and the Modern era belongs to behavioural finance and technological advances in social media. A flowchart is created to display the evolution process. Two independent analyses, fundamental analysis and technical analysis, are integrated to equip investors to identify value stocks and growth stocks to potentially earn abnormal returns. Price-to-book (P/B) ratio is used as an indicator of fundamental analysis while the indicators, trading volume and past stock returns, are used as technical analysis indicators. The stocks have been divided into four Grids based on the trading volume and past stock returns. The results indicate that four Grids have significantly different mean values of the P/B ratio. This means both analyses can distinguish the value (lowest P/B) stocks and the growth (highest P/B) stocks. Value and contrarian investment strategies are assumed to pick the same stocks even though the approach to picking the stocks is different. Furthermore, both investment strategies are supposed to work in various forms of market efficiency. The present study aims to empirically review and analyze the investment strategies, value and contrarian, A Venn diagram is used to explain the selection of stocks under both investment strategies with analysts’ forecast recommendations. Benjamin Graham, Peter Lynch, Joel Greenblatt, Jeremy Goltho Grantham and Joseph Piotroski are famous for their investment strategies in the stock market. These five illustrious investors’ strategy of investment in the stock market is analyzed and their rank in terms of abnormal returns in the Indian stock market is investigated and appropriate investment strategies for abnormal returns are recommended across industries. The data under study comprise the Bombay Stock Exchange (BSE) listed stocks from 1990–91 to 2021-22. This study helps present and future scholars identify previous researchers' ideas and create new theories in investment strategy in stock markets. The main contribution of this study is to provide a coherent picture of the seminal works on investment strategy in stock markets along with the current state of research. Integrating fundamental analysis and technical analysis can help the investors identify value (lowest P/B) stocks and growth (highest P/B) stocks to invest in and may expect abnormal returns. The findings show that value and contrarian investment strategies select different stocks at any given time. Moreover, the study finds that both investment strategies can work in the same form of market efficiency and India is not a weak form of efficient market. Also, there is no difference between the means of the returns per unit of risk of the five illustrious investors. This study brings new insights to scholars, analysts, and investors for analyzing investment strategies and their portfolio composition.
Appears in Collections:Doctoral Theses@LMTSM

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