Does investment style effect portfolio returns: a study on Indian markets

摘要

There is significant empirical evidence specifying the effect of size, value and momentum in portfolio pricing. To confirm the effect, the article has attempted to construct long and short term winners and losers portfolios comprising of stocks forming the CNX NIFTY 500. Stocks are classified based on their past performance, book-to-market value and market capitalisation. The resultant portfolios' pricing is empirically assessed using Carhart four-factor model. The current work further evaluates a set of conditioning information contributing to these factors. Based on the findings, the study makes an attempt to evaluate and compare the returns generated due to 'growth', 'value', and 'momentum' investing in the Indian capital market. It further empirically evaluates the effect of size (small minus large market capitalisation stocks), value (stocks with a low price-to-book ratio) versus growth (stocks with a high price-to-book ratio), and momentum (past winners minus past losers) in the pricing of the portfolios. The study has acknowledged that Indian equity market provides significant profits if investors buy stocks with large market capitalisation and sell stocks with small market capitalisation. This finding is in contrast to the finding of Fama-French (1993) and Carhart (1997).