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The Book-to-Market Anomaly for Banking Stocks in the Indian Stock Market: A Panel Regression Analysis

Mihir Dash (), Sadguna Kantheti and Guttula Krishna Teja
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Mihir Dash: Alliance University, India
Sadguna Kantheti: Alliance University, India
Guttula Krishna Teja: Alliance University, India

Journal of Applied Management and Investments, 2018, vol. 7, issue 1, 15-23

Abstract: The book-to-market effect is one of the most widely-studied phenomena in stock returns. It is characterized by high book-to-market ratio stocks yielding higher returns than low book-to-market ratio stocks, i.e. when stock returns are positively related with book-to-market ratios. The classic Fama-French methodology for analyzing the book-to-market effect involves the comparison of the rates of return of a portfolio consisting of high book-to-market stocks with a portfolio consisting of low book-to-market stocks. The present study contributes to the literature by proposing different methodology for testing the book-to-market effect, viz. fixed-effects panel regression analysis. This study examines the book-to-market effect for banking stocks in the National Stock Exchange (NSE) of India. The data for the study was collected for a sample of eighteen stocks from the banking industry, for the period 01/04/2004 - 31/03/2014. The measures of stock performance considered in the study were mean returns, standard deviation of returns, beta, and the Sharpe and Treynor ratios. The book-to-market ratio was computed from the annual financial statements of the banks. The analysis was performed using fixed-effects panel regression analysis of stock performance on the book-to-market ratio, controlling for stock-specific and period-specific effects. The results of the study indicate significant negative relationship between the book-to-market ratio and the mean returns, Sharpe ratio, and Treynor ratio, significant positive relationship between the book-to-market ratio and beta, and no significant relationship between the book-to-market ratio and standard deviation of returns.

Keywords: book-to-market anomaly; Efficient Market Hypothesis; performance measures; fixed-effects panel regression (search for similar items in EconPapers)
JEL-codes: G21 G14 C23 (search for similar items in EconPapers)
Date: 2018
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