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so what we do For example, you have two different periods, let in 2007 and 2008 of a particular period, late end December 2007 and December 2008 Let the price of the different stocks will be given to you let 50, 60, then let 57, like that and in the December 2008 in the different days you will find this is let 67or 73 and like that you can go for 69 like that Then what basically we do, we first step in this autocorrelation test we generally calculate the return of the stock So, this is basically the price of the stock in the different days in the month of December So, we calculate the return from this let this change in price is here is 10, here it is minus 3, like that here also we can say it is 6 and it is let we can say that minus 4 So, then from these data, we try to establish the relationship between the price change of this month with the price change in another month of the different year So, if you find that there is a proper relationship between the two then, we can say accordingly we can say whether your market is weakly efficient or not So, those who believe that the capital markets are efficient would expect insignificant correlations for all such combinations What does it mean? If we found that there is a significant correlation between the price change of this period with the price change of another period, then we can conclude that market is if there is a significant correlation between them, so definitely we can say this market is inefficient If the correlation between them is highly insignificant in a statistical manner, then we can say that market is weakly efficient So what basically we do here, we test the relationship between a particular stock return of a particular period with the another period and from these data the co-relationship data, we can say whether your market is efficient or market is inefficient So, all these studies are concerned only with short-term trends So, from these, we can only test this market efficiency in the short-term So what generally we found that autocorrelation is stronger for portfolios of stocks of small market size stocks Basically, those kind of autocorrelation test which are very much stronger, the evidence as shown that these are very much stronger, where we talk about the small market size stocks It may not be that much efficient or that much applicable for the large market size stocks Then another test is we defined that the run test What basically the run test means? A run occurs when there is no difference between the sign of two changes So, what basically here we do? If you see for example, the price data will be given to you for the stock, let it is 10, 12, 14, 16, 18, then 15, then we have14, let then again 16 like that Then what generally we say, one run is once this increasing because if you see that, it is increase you know 10 to 12, 12 to 14, 14 to 16, 16 to 18 So, once the increasing trend is goes is going on, so this is one run, one the situation change is now the market is going down, it is going down for these 2 data 15 and 14, so this is another run Then again it has started increasing, so for example, it has started increasing to 16, then again it has gone down 12 So, this is again one run and like that if you again goes on decreasing 12 to 10, 10 to 8 like that, then it is one run and again if it is increasing, we can go for another

it is a bonus announcement or anything else or share by banking etcetera Pinpoint the date on which the event was announced, when the event was announced you just try to figure out that particular date then, collect returns data around the announcement date; before the announcement date, at the particular time whenever the announcement was happening and after the announcement date, so around the announcement date you calculate or collect the returns data Calculate the excess returns by period around the announcement date for each form in the sample, whatever excess return this particular form got which is what do you mean by the excess return what was the expected return and how much return he got So, that basically talks about the expected return, the expected return is basically calculated as the actual return minus the expected return So, actual return is what it is the realized return what he got and the expected return is basically defined as what we got it from the CAPM model, what it is that we will discuss further in elaborate manner So what generally in the CAPM model we say, the expected return of a stock is calculated as R f plus beta into R m minus R f What it basically means, the R f defines the risk free rate The risk free rate means, without any risk if you once you have started the investment, the return is assured may be the we can say the treasury bill rate Then we have data already know that, this is the market risk and your R m basically shows the market return So this market return means this basically the we can say that in the context of India the BSE Sensex or NSE Nifty which are generally called as the market portfolio So, if they are the market portfolio, the return what we get from those index, we call it the market index So, this is may be NSE Nifty, the proxy for market portfolio or BSE Sensex So, these are basically taken has the market return So, once you have the market return and you have the risk free rate and you have the systematic risk or the market risk, then you can calculate your expected return what you are getting out of this So, the excess return is the excess return is your actual return minus expected return So here, once generally we what we do for each stock for each stock around the announcement date in that particular period, you calculate the excess return So, once the excess return is calculated, then you can calculate the compute the average excess return across the all firms Once this you can calculate the average excess return across all firms, you assess whether the excess returns around the announcement date are different from 0 or not So, from this you can say that whether is there any kind of public announcement which has which was happening and some of the investors which are investing in some of the stocks, they got excess return over the other investor So, what kind of result we found from the event studies In the various countries, the research has been carried out and what we found that, if you say that stock split is an event and some of the people have taken stock split as an event and they try to find out what is happening to this particular market, if you takes stock split as a event; using the event study, what they found? They found that these splits, the stock splits do not result in abnormal gains after the split announcement, but before what does it mean? That after those split announcement, the abnormal gains were not there, but before the stock split announcement, there was some gain people are getting out of this Then initial public offerings, this is another event which generally happens with the company and this studies seems to be underpriced by almost 18 percent, but that varies over time and the price is adjusted within one day after the offering So that means, what you can say the market is more or less Semi-strongly efficient, in

that case and the announcement of accounting changes are quickly adjusted for and do not seem to provide opportunities to get the abnormal return, that is why we can say that your market is Semi-strongly efficient and the stock prices rapidly adjust to the corporate events such as mergers and offerings So, more or less the most of the studies and basically I will just quote you that most of the event studies in the larger form is carried out in the developed countries So, in the developed countries case, in the context of USA, UK, Australia, Canada, so in those countries, if you find that most of the cases this public announcement or the events which was occurring to the company and it is available to the public because of their system their efficient system, this particular information generally research to all the investors very quickly So, that is why one group of investor or some of the investor may not use that information to get some abnormal return from the market So, that is why the average excess return over this announcement or over this events is always generally significantly 0 So, they cannot get any excess return out of these, that is why those markets are basically Semi-strongly efficient But, in the developing countries like India, we have seen that most of the time the certain group of investor basically earns high return by using the publicly available announcements or publicly available event, which were occurring in the company, it is because of the inefficient system we have So, then the another study is the portfolio study So, in this portfolio study what generally we see that, in this we define the variable on which the firms will be classified Classify firms into portfolios based upon the magnitude of the variable, compute the returns for each portfolio, calculate the excess returns for each portfolio, assess whether the average excess returns are different across the portfolios, I will just explain what it exactly means Whenever we invest in the stock market, the different investors generally makes the different portfolio So, how generally they make the portfolio? If you are ((comparing)) to some of the words like value stocks like a growth stocks or like certain indicators whatever we have, some of the companies are paying high dividend, some of the companies are paying low dividends So, accordingly the investors make the different portfolios on the basis of certain characteristics; certain characteristics in the sense, whether you can make the portfolio on the basis of the high price-earning ratio or on the basis of low price-earning ratio You make a separate portfolio, which consisting of different stocks which are this is a price-earning ratio which were high and you make another portfolio, where all the stocks which all the stocks where the price-earning ratio is low So, there after making this different portfolio portfolios on the basis of the different parameters, what generally you can do, you calculate the return from that particular portfolio in each category Once for the different portfolios, you have calculate the calculated the return, what generally you can do? You have see that how this particular return, what you have calculated that is different from your expected return Because once you have made the portfolio, you must have calculated the expected return what you are deriving using the same formula, but the for the portfolio calculation it is little bit different, it basically consist of the different stocks So, what generally you can do? Once you have your expected return and once you calculate your expected return of the portfolio So, what generally you can do? The excess return can be calculated in this way, the actual return what you got from this portfolio minus the expected return The expected return what you have calculated from this particular stock So, once the expected return, a excess return is calculated for each type of portfolio, for each portfolio whether it is consist of high price-earning ratio stocks whether it is consist of the low price-earning ratio stocks So, once this return of the excess return of the portfolio is calculated, you test whether the excess returns or a different across the portfolios or not If the excess return is different across the portfolio, then we cannot say that your market is Semi-strongly efficient But across this portfolio, if you find this excess returns are not different and we find

more or less same excess return out of this, then you can say your market is Semi-strongly efficient So, the excess return of the portfolio should be same for all the portfolio; that means, one investor should not get any kind of excess return or abnormal return by using certain philosophy So, this is way generally we can test your Semi-strong form of efficient market hypothesis So, what generally the results we found that in the different cases, low price-earning ratio stocks experienced superior risk adjusted results relative to the market whereas, high price-earning ratio stocks at significantly inferior risk adjusted results That means, in the previous literatures or previous studies what we found? The low price-earning ratio stocks, in generally we call them the value stocks experienced very superior return risk adjusted return relative to the market, whereas the high price-earning ratio stocks, we generally call it the growth stocks that significantly gets lower return than the market The risk adjusted returns are lower for the high price-earning ratio stocks, but for the low price-earning ratio stocks, the returns are higher Then publicly available price-earning ratios posses valuable information regarding the future return So, that what it concludes, if we find this kind of trend that low price-earning ratio stocks are performing better than the high price-earning ratio stocks or the portfolio what you have made out of the low price-earning ratio stocks is outperforming the particular portfolio, which consist of the high price-earning ratio stocks, then what we can say, that the publicly available price-earning ratios possess valuable information regarding future return Some of the people are able to use that information in such a manner that, they can get some abnormal return from the market or the investor gets outperformance of market in that way, but the people who does not have that kind of information which is involved in that particular securities or particular stocks, they cannot get more return from the market or they cannot out from the market So, this is inconsistent with the Semi-strong form of efficiency So, that is why what you can say? That most of the cases, if you take this portfolio studies, we found that this market is not Semi-strongly efficient Then another way also we also defined this portfolio studies on the basis of the price-earnings to growth rate or we divided by growth rate, we call it the PEG ratio And the here what we found, that the studies have hypothesized on inverse relationship between the PEG ratio and the subsequent rates of return If this kind of results its quite relevant or people or the investor can use that information to outperform the market, then this is very much inconsistent with the efficient market hypothesis However, the results what the other people have got using the PEG ratio is to select stocks are very mixed kinds of results, what they found from the various markets So, that is why any of the categories, any of the characteristics what we take and we make the portfolio accordingly; we found that most of the cases these are very much inconsistent with the efficient market hypothesis in the Semi-strong firm Another studies which is very popular, people are extensively use this particular study that we call it the size effect; that means, they make the portfolio on the basis of the size of the companies So, here generally what they do, that the studies indicate that the risk adjusted returns for extended periods, indicate that the small firms consistently experienced significantly larger returns than large firms That means, this a small firms always outperforms the large firms; that means, if your make portfolio which consist of the basically the small firms, they have the better potential to perform in the market, but here one point I am trying to say that, this kind of study the one study in other famous study which are available on the basis of the size effect of the portfolio So, there what generally happens that in the context of USA, this particular result is

quite relevant So, in the US market, the investors always outperforming the market if they will investing the small size stocks or the value stocks what we talk about the low price-earning ratio stocks etcetera, but in Indian market, it is little bit the scenario is different Some of the studies have found that, small size stocks never outperform in the market, the large size stocks outperform in the market and as well as also we found that, sometimes it may not be the value stocks, it may be the growth stocks which always performs better in the market in the context of India But still, again there is the anomaly is there that we can say that, there is some information available to size of the company, category or we can say that price-earning ratio category etcetera So, that is why the people can use that they can outperform it, whether it is the small size performs better or the large size performs better, that does not matter, but across this portfolio, this performance should not be very much different if you make your portfolio on the basis of size or on the basis of the different parameters like price-earning ratio or the dividend yield etcetera Then what we can say that in overall, we can say the size effect also the or the portfolio study itself concludes that the market is not Semi-strongly efficient or we can say market is inefficient So this some of the people also ask this questions, may be this quote have cause the price-earning ratio also we previously studies But, basically this is very much unexplored areas what generally we can say So, the results what basically people found that, the price-earning ratio studies and the size studies are dual test of efficient market hypothesis and the capital asset pricing model what I already told you The abnormal returns could occur sometimes because, the markets are inefficient or the market model is not properly specified and provides incorrect estimates of the risk and expected returns So, definitely if you want to blame the model itself, what we have specified, either in terms of the capital asset pricing model or in terms of the other models, what we discussed in a very extensive manner in the further sessions But here, if you see that most of the researches have argued, whenever you calculate the expected return of a particular portfolio of a particular stock, may be your model is not correctly specified, that is how we sometimes we say, we are getting some excess return out of this But here, that sometimes also we can say that if your model is correctly specified, but still your getting excess return, that may be because of your market is inefficient So, here what we can say that, either it is in terms of inefficiency of the market or it is in terms of the incorrect specification of the model, but still the results are found in most of the cases, we get some abnormal return from the market or some of the investors get abnormal return from the market by using certain investment philosophy or by making their portfolios by specializing their investment strategy in the different ways on the basis of the different parameters what are available publicly available to them So, in that context what you can say, it is very difficult to say that whether your market is efficient or not, but most of the cases, what we can conclude that the publicly available information is not adequate to everybody or it is not reaching to everybody by who is most of them can get the same return like the other investors is are investors are getting But like one other ways also, the researchers most of the cases are found that, the model what we have specified to calculate the expected return out of this is not correct and it is true also, that is why the various models have been developed to overcome that particular problem And this is still a warning you, so in the capital market to know which is the correct model, which can measure the expected return of an equity or expected return of the portfolio So, here if you see that like that the capital asset pricing model, we have developed the arbitrage pricing model, then we have the multifactor model etcetera, what we will discuss further, but still what we can say this is also one of the very big reason We cannot blame only the market that because of these actually we are not getting excess return or the market is not efficient, that is why we are saying that some of them are getting abnormal return and some of them are not getting But most the cases also, the investor who specifies the model or the analyst to specify the model, they have not incorporated all variables which can have the impact on this return of the stock So, in that case what happens, whatever expected return we calculated out of this, that may not be the actual return what or expected return what we could have expected to get it, if you invest in that particular stock So, that is why there are both the reasons are quite relevant in this context that, whether