Seasonal Anomalies in the Indian Stock Market: An Empirical Analysis using Fama-French Three Factor Model.

Abstract

Indian stock market attracts domestic and foreign investments worldwide as it offers the best liquidity of stocks with the highest volume traded and value traded on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Given the strong nexus between world markets, the Indian stock market is directly or indirectly impacted by global market shocks, namely, the US-China Trade War, the COVID-19 pandemic, and implementation of GST (the Goods and Services Tax), and Demonetisation in India. The study uses data between 2014 and 2019 for S&P BSE 100 index to analyze the market anomalies, namely, the Size effect, Value effect, using CAPM (Capital Asset Pricing Model), Fama-French Methodology (FF3F) (1992, 1993, 1997) and dummy variable regression techniques for studying the seasonality effect. Our findings indicate that FF3F has superior explanatory power of cross-sectional variations in the excess portfolio returns over CAPM. Significant evidence exists of the ‘November effect’ and ‘December effect’ for the Indian stock market.