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

Author

Listed:
  • Mihir Dash

    (Alliance University, India)

  • Sadguna Kantheti

    (Alliance University, India)

  • Guttula Krishna Teja

    (Alliance University, India)

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.

Suggested Citation

  • Mihir Dash & Sadguna Kantheti & Guttula Krishna Teja, 2018. "The Book-to-Market Anomaly for Banking Stocks in the Indian Stock Market: A Panel Regression Analysis," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 7(1), pages 15-23, February.
    • Handle: RePEc:ods:journl:v:7:y:2018:i:1:p:15-23
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    References listed on IDEAS

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    More about this item

    Keywords

    book-to-market anomaly; Efficient Market Hypothesis; performance measures; fixed-effects panel regression;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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