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.
  It acts as a clearing house of business information.

 It motivates the managers of well reputed companies, to retain their shares in ‘A’ group,
to improve performance.

 It induces the managers to improve performance for converting non-specified shares into
specified shares in the exchange.

 It enables the investors to evaluate the net worth of their holdings.

 It also allows the companies to float their shares in the market.

CALENDAR EFFECTS IN STOCK MARKETS

Several empirical studies have studied the phenomena of calendar effects in stock markets,
where returns tend to show higher (or lower) than average returns is specific calendar periods.
The calendar effects that have attracted more interested, fueled by favorable evidence, are: (i) the
weekend effect, where Monday returns tend to be lower than on other days of the week, and
sometimes Friday returns are higher; and (ii) the January effect, revealed in the fact that daily
returns tend to be higher in this month, than in other months of the year. Other calendar effects
that have been studied include day of the month effects, where higher returns tend to be
concentrated in specific periods of the month, and holiday effects, where we observe the
behavior of returns after holidays (no trading days). The study of calendar effects is relevant, in
financial economics, because some types of calendar effects are inconsistent with the efficient
market hypothesis. If the flow of information is continuous, and prices reflect all information, we
would expect to find that Monday returns are around three times higher than other weekday
returns, because there are three calendar days between the market closing of Friday, and the
market closing of Monday. But even if we admit that the flow of information is negligible on
weekends, Monday returns should at least be as high as other weekday returns. However,
none of these two hypotheses is confirmed in the US market, or in several other markets.
Monday returns are in fact lower than other weekday returns. On the other hand, month effects
are not necessarily inconsistent with market efficiency, because it is possible that the flow of
information to the markets is specially concentrated in one, or some, of the months of the year. In
any case, there is no strong evidence that January higher returns are caused by a relatively higher
flux of good news, and so calendar effects remain at odds with both the hypothesis of: (i) market
efficiency and (ii) rational behavior of investors. The study of calendar effects is also relevant for
financial managers, financial counselors, market professionals and investors in general, and all
those interested in developing profitable trading strategies.
This paper looks exclusively at day of the week effects and month of the year effects, in
European stock markets. It makes several contributions to the literature on calendar effects in
stock market returns. First, we discuss the shortcomings of previously used models for the
detection of calendar effects, and we propose a simpler model specification that overcomes those
shortcomings. Second, we recognize non-normality and autocorrelation in stock market returns,
and time-dependent variance of the residuals of linear regressions, and apply appropriate
statistical methodologies to tackle these problems, including the bootstrap approach and the
GARCH model, adding statistical robustness to our results. Third, we examine the time-stability
of the most significant calendar effects in the period under study. Fourth, we use observations
from a set of seventeen countries of the same economic region, allowing us to conclude if
calendar effects are across-the-board effects in that region or only country-specific effects. This
is important to know, because some possible explanations for calendar effects, like psychological
traits of investors, would imply across-the-board effects, while other explanations, like those
related to fiscal motivations or market structure, allow for country-specific calendar effects. Five,
we use data from recent years, from 1994 to 2007, on West and Central European stock markets,
thus adding and updating international evidence on calendar effects.

The Three Types of Investors

As should be obvious from my personal investing journey, I progressed through multiple stages
of financial wisdom before figuring out the key to attaining wealth:
For the first several years, I hoarded cash and diversified my investments to ensure a consistent
return on my capital, regardless of how small that return might have been. Once I realized that I
wasn’t going to be able to achieve my financial dreams strictly through diversification, I spent a
couple years chasing the next big investment craze, and looking for a big opportunity to strike it
rich. Unfortunately, there was no “magic bullet” that allowed to get-rich-quick, and once the
market took a down-turn, I found myself back at square one. Finally, I realized that my key to
financial independence was to focus my energies on a single investing area, and devote my time
and energy to creating and fulfilling my strategic investing vision.
In my experience, most successful investors go through these same stages before they become
successful as well. Some, like me, slowly evolve from one stage to another. Others are luckier,
and quickly find their investing niche, bypassing the intermediate stages of growth. And others
forever bounce back and forth between stages, hoping to find the “golden ticket” to success.
While people have been successful at each stage of investing, one stage stands out for those who
aspire to attain wealth. And by understanding the different stages, you can better target the type
of investor you want to be.
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. Savers explicitly choose not to focus their time on
investing or investment strategy; 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”). For those who create a diversified
portfolio, their primary investing strategy is to hedge each of their investments with other “non-
correlated” investments, and ultimately generate a consistent annual return in the range of 3-8%
(after adjusting for inflation). Those who entrust their money to professional money managers
generally get the same level of diversification, and the same 3-8% returns (minus the
management fees).
Savers seek low-risk growth of their capital, and in return, are willing to accept a relatively low
rate of return. While there is certainly nothing wrong with striving for consistent returns, what
the Saver is doing is really no different than putting their money in a Certificate of Deposit,
albeit with slightly higher returns. The bulk of Savers are investing for long-term financial
security and retirement. They start saving in their 20’s and 30’s by putting money in 401(k)
accounts, mutual funds, and other diversified investments, and in 30 or 40 years, they have
enough to retire on.
Savers rely in a single force to grow their capital: time. Because their rate of return is generally
consistent, a Saver’s primary mechanism to achieve wealth is to invest and wait. In fact, Savers
often use The Rule of 72 to calculate long-term investment growth and plan their retirement.
While passive investing is an almost surefire path to a comfortable retirement, it also generally
means 30-50 years of work to get to that point.

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

Specialists

The third type of investor is the Specialist. Like the Speculator, the Specialist realizes that there
is a more powerful investing strategy than just diversifying across a range of asset classes. But,
unlike the Speculator, the Specialist understands that the key to successful investing isn’t luck,
“hot tips”, or “being in the right place at the right time”; it’s education and experience. The
Specialist recognizes that investing is no different than any other competitive endeavor — there
will be winners and there will be losers, and the winners will generally be those who are most
prepared.
The Specialist generally picks a single investing area, and becomes an expert in that area. Some
Specialists deal in paper assets, some deal in real estate, and some start businesses. Unlike the
Speculator who looks for the next “hot” investing area and the next hot market, the Specialist can
make money in his chosen investment area during any market — hot, cold, or in-between. The
Specialist knows his investment area inside and out, and instead of just entering and exiting
investments, the Specialist has a plan.
In fact, having a plan is the key difference between the Specialist and either the Saver or the
Speculator. The plan is the blueprint for achieve investment success, and with it, the Specialist
can achieve huge returns with relatively low risk.

THE STOCK MARKET, INDIVIDUAL INVESTORS, AND FINANCIAL RISK

Riskier long-term saving requires that an individual possess the ability to manage the associated
increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government
insured) bank deposits or bonds. This is something that could affect not only the individual
investor or household, but also the economy on a large scale. The following deals with some of
the risks of the financial sector in general and the stock market in particular. This is certainly
more important now that so many newcomers have entered the stock market, or have acquired
other 'risky' investments (such as 'investment' property, i.e., real estate and collectables).
With each passing year, the noise level in the stock market rises. Television commentators,
financial writers, analysts, and market strategists are all overtaking each other to get investors'
attention. At the same time, individual investors, immersed in chat rooms and message boards,
are exchanging questionable and often misleading tips. Yet, despite all this available
information, investors find it increasingly difficult to profit. Stock prices skyrocket with little
reason, then plummet just as quickly, and people who have turned to investing for their
children's education and their own retirement become frightened. Sometimes there appears to be
no rhyme or reason to the market, only folly.
This is a quote from the preface to a published biography about the long-term value-oriented
stock investor Warren Buffett.[4] Buffett began his career with $100, and $105,000 from seven
limited partners consisting of Buffett's family and friends. Over the years he has built himself a
multi-billion-dollar fortune. 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.

MAJOR FACTORS THAT AFFECT STOCK PRICE IN STOCK MARKET

GLOBALLY
When you wish to invest in the stock market, then you should always make a good survey of the
whole market. As you know that you cannot predict the stock market, so in that case you need to
know the functioning of the market. There are some major factors that affect stock price. So
let us discuss about the different factors affecting the stock price in this article.
DEMAND AND SUPPLY
One of the major factors affecting stock price is demand and supply. The trend of the stock
market trading directly affects the price. When people are buying more stocks, then the price of
that particular stock increases. On the other hand if people are selling more stocks, then the price
of that stock falls. So, you should be very careful when you decide to invest in the Indian stock
market.
Never try to guess the worth of a company simply by comparing the price of the stock. 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. So market cap is another factor that affects stock
price.
NEWS
When you get positive news about a company then it can increase the buying interest in the
market. On the other hand, when there is a negative press release, it can ruin the prospect of a
stock. In this case you should remember that news should not matter much but the overall
performance of the company matters more. So, news is another factor affecting stock price.
EARNING/PRICE RATIO
Another important factor affecting stock price is the earning/price ratio. This gives you a fair
idea of a company’s share price when it is compared to its earnings. The stock becomes
undervalued if the price of the share is much lower than the earnings of a company. But if this is
the case, then it has the potential to rise in the near future. The stock becomes overvalued if the
price is much higher than the actual earning.
So, these are the major factors that affect stock price.
DAY TRADING
Day trading (and trading in general) is the buying and selling of various financial instruments,
such as futures, options, currencies, and stocks, with the goal of making a profit from the
difference between the buying price and the selling price. 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.
Day trading was originally only available to financial companies (such as banks), because only
they had access to the exchanges and market data. But with recent technology such as the
Internet, individual traders now have direct access to the same exchanges and market data, and
can make the same trades at very low cost.
TRADING STYLES
There are several different styles of day trading, suited to different day trader personalities. The
styles range from short term trading such as scalping where positions are only held for a few
seconds or minutes, to longer term swing and position trading where a position may be held
throughout the trading day. Most day trading systems have a lot of flexibility, and can have open
positions for anywhere from a few minutes to a few hours, depending upon how the trade is
doing (whether it is in profit). Some day traders will trade multiple styles, but most traders will
choose a single style and only take that type of trade.
Day trading also has different types of trade, such as trend trades, counter-trend trades, and
ranging trades. Trend trades are trades in the direction of the current price movement (i.e. buying
if the price is moving up), and counter-trend trades are trades against the direction of the current
price movement (i.e. selling if the price is moving up). Ranging trades are trades that go back
and forth between two prices, and are used when the market is moving sideways. Most day
traders will choose a single type of trade, but some traders will take different types, and choose
which one to trade depending upon the current condition of the market.
In addition to the style and type of day trading, there are other variances between day traders.
Some day traders like to make many trades throughout the trading day, while others prefer to
wait for what they consider the best conditions for their trade, and perhaps only make one trade
per day. However many trades are made, the trading process that is used, and the desired goal of
making a profit, are the same

EMOTIONS AND HOW THEY AFFECT INVESTMENT BEHAVIOR

Recent times have been difficult for investors. Some have made the situation worse by buying
and selling at the wrong times. For most people, the normal emotional response to rising markets
is to feel confident and positive. This can lead to the desire to increase risk tolerance and
purchase risky assets at potentially high prices. The opposite is true after big market declines.
Our emotions may tell us to pull in and avoid risk when, perhaps, the opportunities for higher
returns are greatest.

Because of this and other reasons, individual investors are notoriously bad market timers, as
evidenced by mutual fund cash flows. For example, The Wall Street Journal recently reported
that mutual fund research firm, Morningstar, determined that investors contributed more than
$300 billion of new money to equity mutual funds during the six-year period from 2002 to 2007,
much of it near market highs. When prices declined, investors redeemed more than $150 billion.
According to the Hulbert Financial Digest, the total cost of this poor timing for stock fund
investors was more than $42 billion for the 12 months ending May 31, 2009.

As a possible explanation of this behavior, we might consider the interesting work that is being
done if the field of neuroscience, where researchers study the brain's response to stimuli in an
attempt to better understand human decision-making. 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.

Brain scans show that there are two parts of the human brain operating in radically different
ways. The prefrontal cortex is the rational, unemotional part of the brain that is used in long-
term, logical thinking. The limbic system, on the other hand, is the brain's short-term, emotional
side that often causes trouble for investors. Under certain conditions, our emotional brains can
take over and cause us to make poor, irrational decisions.
In a study published in 2005, researchers from Carnegie Mellon, the Stanford, and the University
of Iowa, found that people with an impaired ability to experience emotions made better
investment decisions in a simple investment game. The game involved a series of rounds in
which players could choose whether or not to invest hypothetical 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, regardless of what happened in previous ones. Not surprisingly,
the normal, unimpaired players were frequently affected by recent outcomes and were reluctant
to invest after a series of losses. 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.

This was just a simple game with imaginary money. Imagine how this might play out more
significantly in the real world with multiple sources of uncertainty and real money at stake.

Evolutionary biologists believe that humans developed this fear response as a survival
mechanism to protect against predators. But in a world where we are not threatened by predators,
this fear system can be over-sensitive, causing us to react to dangers that do not actually exist.
This can lead to irrational choices and bad financial decisions.

What can investors do to neutralize the effects of their emotions and make
smarter investment decisions? Here are some suggestions:

STAY DISCIPLINED - putting too much emphasis on short-term market movements or

popular, alarmist market forecasts might cause you to develop an irrational sense of fear. Turn
off the investment "noise," have faith that markets work, and stay committed to your long-term
objectives.

BE DIVERSIFIED - a properly balanced portfolio may smooth out the ups and downs, reducing
the probability that big losses will send your short-term, emotional brain into overdrive.

IGNORE THE RECENT PAST - your brain is hard-wired to make projections based on past
trends by seeking out patterns in data, even when none exist. This can be very dangerous to your
financial health. Stay focused on the long run and ignore random, short-term fluctuations.
WRITE AN INVESTMENT POLICY STATEMENT - you should develop and follow a
comprehensive investment policy statement that outlines your important goals and a strategy to
achieve them. Having a written policy makes it more likely you will follow a prudent path when
your emotions tell you otherwise.

REBALANCE - 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. and the investor makes a decision on the basis of news whether to buy
or sale the shares.
News are broadly categorized in three parts

* Country - All the news related to flood and other country related stuff like wars
fall under this category.

* Political – Every news related to govt. and political parties such as elections and
the name for the nominations etc.

* Company – News related to company, 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.

• 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.
• 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.

• 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.

• INFLATION
It is another big factor as the inflation raises the graph of the company rises
because the prices of every thing are increasing.

• 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.

• 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.
 • 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.

• WARS ARE GOOD FOR THE MARKET

 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.g. 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.

• 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.

• 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.

• FULL MAJORITY GOVT. IS NOT GOOD FOR THE MARKET

Full majority govt. 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. and the
ruling party acts like a dictator.

• 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.
INVESTMENT APPROACHES OF INVESTORS

As investors we would have diverse investment strategies with the primary aim to achieve
superior performance, which would also mean a higher rate of return on our investments. All
investment strategies can be broadly classified under 4 approaches, which are explained below.

FUNDAMENTAL APPROACH: In this approach the investor is concerned with the intrinsic
value of the investment instrument. Given below are the basic rules followed by the fundamental
investor.

There is an intrinsic value of a security, which in turn is dependent on the underlying economic
factors. This intrinsic value can be ascertained by an in-depth analysis of the fundamental or
economic factors related to an economy, industry and company.

At any point in time, many securities have current market prices, which are different from their
intrinsic values. However, sometime in the future the current market price would become the
same as its intrinsic value. We as fundamental investors can achieve superior results by buying
undervalued securities and selling overvalued securities.

PSYCHOLOGICAL APPROACH: The psychological investor would base his investment

decision on the premise that stock prices are guided by emotions and not reason. This would
imply that the stock prices are influenced by the prevalent mood of the investors. This mood
would swing and oscillate between the two extremes of “greed” and “fear”. When “greed” has
the lead stock prices tend to achieve dizzy heights. And when “fear” takes over stock prices get
depressed to lower than lower levels.
As psychic values seem to be more important than intrinsic values, it is suggested that it would
be more profitable to analyze investor behaviour as the market is swept by optimism and
pessimism. Which seem to alternate one after the other. This approach is also called “Castle-in-
the-air” theory. In this approach the investor uses some tools of technical analysis, with a view to
study the internal market data, towards developing trading rules to make profits.

In technical analysis the basic premise is that price movement of stocks have certain persistent
and recurring patterns, which can be derived from market trading data. Technical analysts use
many tools like bar charts, point and figure charts, moving average analysis, market breadth
analysis amongst others.

ACADEMIC APPROACH: Over the years, the academics have studied many aspects of the
securities market and have developed advanced methods of analysis. The basic rules are:

The stock markets are efficient and react rationally and fast to the information flow over time.
So, the current market price would reflect its intrinsic value at all times. This would
mean "Current market price = Intrinsic value".

Stock prices behave in a random fashion and successive price changes are independent of each
other. Thus, present price behavior can not predict future price behavior.

In the securities market there is a positive and linear relationship between risk and return. That is
the expected return from a security has a linear relationship with the systemic or non-
diversifiable risk of the market.
 LITERATURE REVIEW

Market Anomalies

The EMH became controversial especially after the detection of certain anomalies in the capital
markets. Some of the main anomalies that have been identified are as follows:

A. The January Effect: Rozeff and Kinney (1976) were the first to document evidence of higher
mean returns in January as compared to other months. Using NYSE stocks for the period 1904-
1974, they find that the average return for the month of January was 3.48 percent as compared to
only .42 percent for the other months. 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. The effect has been found to be present in other countries as well (Gultekin and
Gultekin, 1983). The January effect has also been documented for bonds by Chang and Pinegar
(1986). Maxwell (1998) shows that the bond market effect is strong for non-investment grade
bonds, but not for investment grade bonds. More recently, Bhabra, Dhillon and Ramirez (1999)
document a November effect , which is observed only after the Tax Reform Act of 1986. They
also find that the January effect is stronger since 1986. Taken together, their results support a
tax-loss selling explanation of the effect.

B. 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. He notes that these negative returns are
"caused only by the weekend effect and not by a general closed-market effect". A trading
strategy, which would be profitable in this case, would be to buy stocks on Monday and sell
them on Friday. Kamara (1997) shows that the S&P 500 has no significant Monday effect after
April 1982, yet he finds the Monday effect undiminished from 1962-1993 for a portfolio of
smaller U.S. stocks. Internationally, Agrawal and Tandon (1994) find significantly negative
returns on Monday in nine countries and on Tuesday in eight countries, yet large and positive
returns on Friday in 17 of the 18 countries studied. However their data do not extend beyond
1987. Steeley (2001) finds that the weekend effect in the UK has disappeared in the 1990s.
C. Other Seasonal Effects: Holiday and turn of the month effects have been well documented
over time and across countries. Lakonishok and Smidt (1988) show that US stock returns are
significantly higher at the turn of the month, defined as the last and first three trading days of the
month. Ariel (1987) shows that returns tend to be higher on the last day of the month. Cadsby
and Ratner (1992) find similar turn of month effects in some countries and not in others. 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. Hensel and Ziemba (1996) and Kunkel and
Compton (1998) show how abnormal returns can be earned by exploiting this anomaly.
Lakonishok and Smidt (1988), Ariel (1990), and Cadsby and Ratner (1992) all provide evidence
to show that returns are, on average, higher the day before a holiday, than on other trading days.
The latter paper shows this for countries other than the U.S. Brockman and Michayluk (1998)
describe the pre-holiday effect as one of the oldest and most consistent of all seasonal
regularities.

D. Small Firm Effect: Banz (1981) published one of the earliest articles on the 'small-firm
effect' which is also known as the 'size-effect'. His analysis of the 1936-1975 period reveals that
excess returns would have been earned by holding stocks of low capitalization companies.
Supporting evidence is provided by Reinganum (1981) who reports that the risk adjusted annual
return of small firms was greater than 20 percent. 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. But this did not happen.

E. 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. An investor who held the low P/E
ratio portfolio earned higher returns than an investor who held the entire sample of stocks. These
results also contradict the EMH. Campbell and Shiller (1988b) show P/E ratios have reliable
forecast power. Fama and French (1995) find that market and size factors in earnings help
explain market and size factors in returns. Dechow, Hutton, 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.
F. 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. Over a
five year period starting from 1965, returns to investors correspond to the rankings given to
firms. That is, higher ranking firms earned higher returns. Several researchers (e.g. Stickel, 1985)
find positive risk-adjusted abnormal (above average) returns using value line rankings to form
trading strategies, thus challenging the EMH.

G. Over/Under Reaction of Stock Prices to Earnings Announcements: There is substantial

documented evidence on both over and under-reaction to earnings announcements. DeBondt and
Thaler (1985, 1987) present evidence that is consistent with stock prices overreacting to current
changes in earnings. They report positive (negative) estimated abnormal stock returns for
portfolios that previously generated inferior (superior) stock price and earning performance. This
could be construed as the prior period stock price behavior overreacting to earnings
developments (Bernard, 1993). 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, and being completed over a period of at least six
months. Ou and Penman (1989) also argue that the market underutilizes financial statement
information. Bernard (1993) further notes that such anomalies are not due to research design
flaws, inappropriate adjustment for risk, or transaction costs. Thus, the evidence suggests that
information is not impounded in prices instantaneously as the EMH would predict.

H. 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. Since in an efficient market only information should change prices, 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. [3]

I. 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. Unlike open-
end funds, closed-end funds do not stand ready to sell or repurchase their securities at the net
asset value per share. [4] They float a fixed number of shares in an initial public offering and
after that, investors wishing to buy or sell shares of a closed-end funds must do so in the
secondary market. [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. Malkiel (1977) argues that the market valuation of closed-end investment company shares
reflects mispricing. As he notes, "The pricing of closed-end funds does then seem to provide an
illustration of market imperfection in capital-asset pricing." [Malkiel, 847] In general, the funds
have been shown to trade at a discount relative to their net asset values (See Malkiel, 1977;
Brickley and Schallheim, 1985; Lee, Shleifer and Thaler, 1991). Between 1970 and 1990, the
average discount on closed-end funds ranged between 5 to 20 percent. The existence of discounts
clearly contradicts the value additivity principle of efficient and frictionless capital markets. [6]
Reports from the popular press have also commented on mispricing in the closed-end fund
market. As Laderman notes in Business Week (March 1, 1993), "America’s financial markets are
the most efficient in the world. But there’s one corner where pockets of inefficiency still exist:
closed-end funds".

J. The Distressed Securities Market: While the academic literature largely suggests that stocks
in the distressed securities market are efficiently priced (e.g. Ma and Weed [1986], Weinstein
[1987], Fridson and Cherry [1990], Blume, Keim and Patel [1991], Cornell and Green [1991],
Eberhart and Sweeney [1992], Altman and Eberhart [1994], Buell [1992]) the popular press has
frequently conjectured that the stock pricing may be inefficient during the bankruptcy period. [7]
For example, the shares of Continental Airlines continued to trade on the AMEX at or about
$1.50 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, 1992). [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. As Philip
Schaeffer of Robert Fleming Inc. puts it:

"Returns are attractive because of market's abundant inefficiencies. 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. Distressed investing
requires skills involving bankruptcy law, experience and knowledge of the bankruptcy process,
and personal contacts. Consequently, the relatively small number of experienced distressed
security investors have a significant advantage over other investors who do not have such
expertise, knowledge and experience". [Wall Street Journal, 1991]

K. The Weather: Few would argue that sunshine puts people in a good mood. People in good
moods make more optimistic choices and judgments. Saunders (1993) shows that the New York
Stock Exchange index tends to be negative when it is cloudy. More recently, 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.
Interestingly, 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. It clearly suggests that information alone is not moving
the prices. [Roll, 1984] [9] These anomalies have led researchers to question the EMH and to
investigate alternate modes of theorizing market behavior. Such a development is consistent with
Kuhn's (1970) route for progress in knowledge. As he states, "Discovery commences with the
awareness of anomaly, i.e., with the recognition that nature has somehow violated the paradigm
induced expectations..." [Kuhn, 52]
 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. Following are the sub-objectives of my basic
objective.

1. To find out the basic purpose of investors for investing in different investment.
2. To find out the preferred attributes of different alternatives on which investor’s are willing to
invest.
3. To find out the perception of investors about Risk and Return related to different alternatives
in stock market.
4. To make the investor aware about the factors which may affect their investment.
5. To forecast or predict the future trend of stock market which helps in investment.
6. To know the effect of these fluctuation on the Indian economy.
 LIMITATIONS OF STUDY
BF/BE are still not considered fully scientific and practical fields. They have some weaknesses,
such as their overemphasis on:

* Anomalies compared to standard finance.

BF/BE concepts refer quasi-exclusively to mental deviations. Therapeutic purpose or
witch hunting? Those references limit the main criteria of "normality" in finance
(and economics) to expected monetary returns and risks.
This contributes to consider as a "market anomaly" any divergence from those two
criteria. This seems too obvious to fit realities fully.
- What about uncertainty as a broader concept than statistical risk?
- More important, what about non monetary returns, that might also have their
degree of legitimacy?
Such "soft" returns are empathy, fun, power, human challenge, search for experience
and knowledge and myriads of other goals.

* Reactions to events / information (underreaction, overreaction...).

What about the observation of the players' behavior when there is a lack of new
relevant events, 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, processes and effects of what is called
"decision making".
We can have doubts that this would ever be a fully predictive science or technique
(uncertainties will not disappear), other than helping to find the range of possible
scenarios between which deciders might choose.
Maybe we will never end to learn more and more about the human being and about
human societies, a quest that started thousands of years ago!