Stock Market Anomalies In India and the United States

By

ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

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TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

CHAPTER 1: INTRODUCTION1

Background of the Study1

Outline of the Research Study2

Aims and Objectives3

Problem Statement4

Significance of the study4

Rationale of the study4

Research Questions5

CHAPTER 2: LITERATURE REVIEW6

Efficient Market8

Strong Efficient Market9

Size Effect10

Contrarian Strategy11

January Effect12

CHAPTER 3: METHODOLOGY14

Rationale for a Qualitative Study14

Rationale for a Quantitative Study15

Strength and weakness of the mixed research15

Research Design16

Instrument for data collection17

Data analysis17

Literature review17

Analysis, Conclusion and Recommendation19

Scope of the Research19

Underlying assumptions20

Possible alternative to the proposed methods20

Any difficulties and uncertainties20

Explanation of the rationale for the proposed methods21

CHAPTER 4: ANTICIPATED RESULTS22

REFERENCES23

CHAPTER 1: INTRODUCTION

Background of the Study

An anomaly is the occurance of the unusual or strange behavior that has not been observed in the past. In the stock market, the anomalies are referred to the condition when the securities or collection of securities moves in the unusual manner that is not according to the efficient market hypothesis where the group of securities are likely to represent the knowledge available at all the points of time. As there is a propagation of the new knowledge continuously, it becomes difficult to maintain the principles of the efficient markets within the financial system. There are some market anomalies that arise for once only and disappear with the passage of time. However, some of the anomalies are persistent in nature and reoccur in the stock market at regular intervals of time. In the 1960's, two key theories in the financial markets were developed.  These were the Efficient Markets Hypothesis and the Capital asset pricing Model. However, there is evidence that these two theories do not fully describe how the markets work.  Anything that does not fit the theory is an anomaly. These anomalies are important as they can be considered as an evidence against the theories and that they may need to be improved. Some anomalies focus on the Efficient Market Hypothesis.  For example if we can find a pattern in the data (e.g. day of the week effect) this contradicts the weak form of EMH. Other anomalies are the joint tests of both the Capital Asset Pricing Model and the Efficient Market Hypothesis (e.g. the "Small Firm Effect"). Anomalies may disappear over time, e.g. the market may realise that small firms are cheap and the high risk adjusted returns may disappear so there is a need to test the market on continuous basis.

 

The research study has specifically chosen the Indian and the United States stock market anomalies so that the trends in the Indian and United States market can be analyzed.

Outline of the Research Study

Chapter I: Introduction

The research subject will be introduced in the start, consisting of the aims ...