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Post-colonial Finance

Author

Listed:
  • S. Maheswaran

    (Professor, Centre for Advanced Financial Studies, Institute for Financial Management and Research, 24 Kothari Road, Nungambakkam, Chennai 600034, India. E-mail: mahesh@ifmr.ac.in)

  • G. Balasubramanian

    (Professor, Institute for Financial Management and Research, 24 Kothari Road, Nungambakkam, Chennai 600034, India. E-mail: bala@ifmr.ac.in)

  • C.A. Yoonus

    (Research Scholar, Institute for Financial Management and Research, 24 Kothari Road, Nungambakkam, Chennai 600034, India. E-mail: yoonus@ifmr.ac.in)

Abstract

A new variance ratio is proposed in this article that utilises the extreme values of asset prices. On the basis of the specification test, it is documented that there is excess volatility in the Indian stock market, whereas this feature is completely absent in the US. It is also found that such excess volatility is persistent in India in the sense that it gives rise to excessive path dependence. Furthermore, it is shown how such path dependence can be modelled from a theoretical point of view by way of the Binomial Markov Random Walk model.

Suggested Citation

  • S. Maheswaran & G. Balasubramanian & C.A. Yoonus, 2011. "Post-colonial Finance," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 10(2), pages 175-196, August.
    • Handle: RePEc:sae:emffin:v:10:y:2011:i:2:p:175-196
    DOI: 10.1177/097265271101000202
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    References listed on IDEAS

    as
    1. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    2. Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
    3. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
    4. Thierry Ané & Hélyette Geman, 2000. "Order Flow, Transaction Clock, and Normality of Asset Returns," Journal of Finance, American Finance Association, vol. 55(5), pages 2259-2284, October.
    5. Ball, Clifford A & Torous, Walter N, 1984. "The Maximum Likelihood Estimation of Security Price Volatility: Theory, Evidence, and Application to Option Pricing," The Journal of Business, University of Chicago Press, vol. 57(1), pages 97-112, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kumar, Dilip & Maheswaran, S., 2013. "Detecting sudden changes in volatility estimated from high, low and closing prices," Economic Modelling, Elsevier, vol. 31(C), pages 484-491.
    2. Maheswaran, S. & Kumar, Dilip, 2013. "An automatic bias correction procedure for volatility estimation using extreme values of asset prices," Economic Modelling, Elsevier, vol. 33(C), pages 701-712.

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    More about this item

    Keywords

    JEL Classification: G12; JEL Classification: G14; JEL Classification: G15; Excess volatility; emerging markets; neo-classical finance; Markov property of asset prices; Binomial Markov Random Walk model;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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