Anomalous Market Movements and the Rolling Settlement: Empirical Evidence from Indian Stock Markets

Ramesh Chander and Kiran Mehta

Vision, 2007, vol. 11, issue 4, 31-44

Abstract: Investors and analysts are unable to predict stock price movements consistently so as to beat the market in informationally efficient markets. Still, concerted efforts are being made to earn abnormal returns discerning some anomalous pattern in the stock price movements. Also, the study of some structural changes in the market leading to, or removing some anomalous pattern in the stock prices, are of interest to investors and analysts. The present study was conceptualised to scrutinise whether anomalous patterns yield abnormal return consistently for any specific day of the week even after introduction of the compulsory rolling settlement on Indian bourses. Three market series viz., BSE Sensex, S and P CNX Nifty and S and P CNX 500 were observed on daily basis for ten years viz., i) Pre-rolling settlement period, April 1997 - December, 2001 and ii) Post-rolling settlement period, January 2002 - March 2007 to discern evidences in this regard. Contrary to developed capital markets, the results reported in this study documented lowest (significant) Friday returns in the pre-rolling settlement period as credible evidence for the weekend effect. The findings recorded for post-rolling settlement period were in harmony with those obtained elsewhere in the sense that Friday returns were highest and those on Monday were the lowest. It implied that arbitrage opportunities existed (for different trade settlement cycle on two exchanges, BSE and NSE) have disappeared consequent to the rolling settlement. On the whole, the study noted stock markets moved more rationally and anomalous return pattern noticed earlier could not sustain, in the post rolling settlement period.

Keywords: Rolling Settlement; Anomalous Market Movements; Day-of-the-week Effect; Efficient Market Theory; Stock Returns; Investment Strategy; Arbitrage Opportunities (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:sae:vision:v:11:y:2007:i:4:p:31-44

DOI: 10.1177/097226290701100404

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