A Study of Return, Liquidity of Sectoral Indices, Market Index Return of Indian Financial Market (BSE)

Abstract

Market return represents the total return of the market index. It is found that performance of the few sectoral indexes is very high compared to the market index return. This study finds the variance in all sectoral indices and the market Index (BSE) return and illustrates the significance of the individual sector performance and their impact upon on the market index returns. The paper has also explained the liquidity of the sectoral indices and market index on the basis of price returns by calculating market efficiency coefficient. The paper find that the sensex returns can be explained with the help of selected sectoral index returns. The study is carried out in different phases and has found significant difference with inclusion of power and realty sector. It is the time lag which increases the model fit and inclusion of realty and power indices returns also increase of fitness in ARIMA model. This paper exemplify that forecasting of the sensex returns with help of differenced first order regressive method provides better results. The peculiar observations reveal that health and consumer durable indexes are earning against the market index returns, whereas Technology, oil, Capital goods and banking remained the main contributors to the overall market index returns. GARCH models illustrate that lower volatility clustering involved with the presence of the realty and power sectoral indices. The liquidity measured on the basis of Market efficiency coefficients (MEC) have provided that the sectors like health care, consumer durables and the auto sectoral indices have high long term variance in the returns where as oil and gas sector have lower value. It is found that all sectoral indices of BSE have more than one as MEC, indicating the higher long term variance than short term variance of sectoral indices.