Multiple Dimensions of Cyclicality in Investing

Thillaikkoothan Palanichamy and Parthajit Kayal ()
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Thillaikkoothan Palanichamy: Madras School of Economics
Parthajit Kayal: (Corresponding author), Madras School of Economics

Working Papers from Madras School of Economics,Chennai,India

Abstract: Returns on Equity as an asset class tend to be erratic and uneven. Contrary to popular opinion, such fluctuations in returns cannot be attributed to business cyclicality alone. Historically, investors' attitude towards risk has had ramifications on how individual stocks and indices are priced. Commonalities across market up-cycles and down-cycles are examined using data on the Nifty-50 index. Based on firm-level characteristics, the investible universe is segregated into two categories: quality and Cyclical. The performance of the Quality and Cyclical portfolio across market cycles is analysed. Although markets are ‘efficient’ in the long run, investor perception plays an important role in short-term pricing. The Price to Earnings (P/E) ratio in spite of its shortcomings serves as a useful tool in evaluating prospective investments.

Keywords: Quality; Cycle; Investment; Portfolio (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2022-02
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