Mid Cap Index Research Articles

Does commitment to environment and society pays? Evidence from COVID-19 impact on stock volatility

Purpose This study aims to analyse whether investment in green and sustainable stocks provide some cushion during current precarious time. To compare the impact of COVID-19 on the volatility of sustainable and market-capitalisation-based stocks, daily returns from Greenex, Carbonex, Large-Cap, Mid-Cap and Small-Cap index have been analysed over a period of six years from 2015 to 2021. Design/methodology/approach At the outset, logarithmic return of all selected indices has been tested for possible unit root and heteroscedastic. On confirmation of stationarity and heteroscedasticity of data, auto-regressive conditional heteroscedastic models have been applied. Thereafter, volatility is modelled through best suitable model as suggested by Akaike and Schwarz information criterions. Findings The findings indicate the positive impact of COVID-19 on the volatility of the indices. Asymmetric power ARCH model indicates highest significant impact of COVID-19 over the volatility of Large-Cap index, whereas exponential GARCH model detected highest significant impact of COVID-19 over the volatility of Mid-Cap Index. Originality/value To the best of the authors’ knowledge, the present study is original in the sense that it aimed at comparing the possible impact of COVID-19 over sustainable and market-capitalisation-based indices.

Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management

The connectedness dynamics between large-, mid-, and small-cap stocks is investigated using the forecasted error variance decomposition (FEVD) spillover framework of Diebold and Yilmaz in the time-frequency domain. Total volatility spillover (i.e., connectedness) is elevated between large-, mid-, and small-cap stocks during the study period. This high level of spillover exists in the short run only, and declines gradually in the medium to long run, thus providing opportunities for portfolio diversification (hedging) in multi-cap investing during the medium-to-long run (short run) only. Like total connectedness, a similar pattern of bilateral connectedness is observed between either of the two indices, thus providing a similar opportunity in the short and long runs. The mid-cap index emerges as the major contributor to total volatility in the system, followed by the small- and large-cap indices, during the analyzed period. The volatility spillover is time-varying in both the time and frequency domains.

The Effect of a Closing auction on Market Quality and Market Efficiency in the Stock Exchange of Hong Kong

Hong Kong introduced the Closing Auction Session (CAS) to the HKEX securities market in 2016. Under the CAS, trading is extended by an extra 8-10 minutes after the daily trading session ends at 16:00 to determine the closing price for the day. Trading under the CAS is in the form of a single price auction, at which buyers and sellers submit orders so that the trading system determines a market clearing closing price for each security and orders are executed at that price. CAS was introduced in three phases, covering constituent stocks of Hang Seng Composite LargeCap and MidCap Index since July 25, 2016, constituent stocks of Hang Seng Composite SmallCap Index since July 26, 2017, and all equities, funds, and leveraged and inverse products since October 8, 2019. The introduction of CAS is to meet the needs of some investors, such as index fund managers, who need to trade at the closing price. This study investigates the effect of CAS on market liquidity and price efficiency, two major aspects of financial market quality, to see whether it may safeguard against extreme price volatility and improves price efficiency. The analysis is conducted based on Hang Seng LargeCap and Midcap stocks after the introduction of CAS in July 2016. Since its inception, the trading volume for LargeCap and MidCap stocks transacted during the CAS has experienced steady growth, with the percentage of volume accounting for more than 8% by June 2018. The CAS draws volume mostly from the end of the continuous trading session, with the last 15-minute interval (15:45-16:00) contributing the largest volume migration. On the other hand, the decline in volume in the rest of the continuous session is very small. To address our main research question, we examine the effect of CAS on a variety of market liquidity and price efficiency measures. Regarding the impact of CAS on market liquidity, we find that the introduction of the close auction results in a slight decline in liquidity during the continuous trading session, with the reduction of liquidity most pronounced in the last 15-minute interval, as evidenced by a wider bid-ask spread and lower depth. However, the price impact (defined as the absolute return divided by the trading volume) in the last 15-minute decreases significantly. Regarding the impact of CAS on price efficiency, if the uninformed traders migrate to the close auction from the daily session, we expect a temporary price pressure near the close of the daily session to fall and a weaker subsequent price reversal. Using the return reversals observed subsequent to the end of the daily trading session, from the trading price at 16:00 to the trading price of the next day, we find that this is indeed the case. There is a general pattern of return reversal, but the magnitude of the reversal is smaller after the introduction of CAS. This indicates that price is more efficient after the implementation of CAS. The finding is in line with the evidence suggesting that passive funds shift from the continuous trading session to the closing auction session. These passive funds are incentivised to trade near the market close, as they are benchmarked against the index they track based on the closing price. Since these passive fund investors demand liquidity from the market, their migration to the closing auction session will lower liquidity in the last 15-minute period of the continuous trading session but can increase price efficiency at the market close. Overall, the introduction of CAS by HKEX is beneficial to many market participants who use the closing price as a reference price for the day-end settlement of many financial securities, such as mutual funds' NAV, the asset value of exchange-tr aded funds.

Impact of COVID-19 on the perception of Indian investors towards investment in equity fund

During the post demonetization and GST, Indian economy was struggling continuously to recover from the economic crisis. In the financial year 2019–2020, GDP rate fell from 7% to 5.4% which is about 18.20%. BSE Sensex index was 42273 as on January 20th of 2020 but on April 8, 2020, it was 29894. During the Financial year 2019–2020, a reduction of 26% in mid cap index was observed, but at the same time, sensitive index reduced by 22%. These things affect the share market and financial stability of people. The stock market over the last one-year became volatile and crashed. To handle the downwards economy, Government took the initiative and announced deep tax cuts for businesses in the month of August 2019. But in the beginning of the year 2020, there was another sluggish phase which stubborn the economy. This time, it was a virus, named as COVID-19(coronavirus), which created a pandemic situation and spread all over the world. Nation-wide lock down was announced to fight with COVID-19 as there was no vaccine introduced. Starting from agriculture to textile, apparel, automotive, aviation, hotels and restaurants, poultry, chemicals, consumer durables, entertainment, sports, FMCG (fast moving consumer goods), pharmaceutical, ecommerce, IT and moreover corporate sectors were adversely affected due to this pandemic and lock down rules. Therefore, this paper focuses on the impact of corona on the perception of Indian investors towards investment in equity fund.

The Curious Case of the Mid-Cap Premium

Although many mutual fund families and exchanged-traded fund vendors offer mid-cap equity funds, research interest in mid-cap equities has been lacking. This phenomenon may be a result of behavioral patterns: Most equity analysts focus on the largest companies, and the popularity of the Fama–French factors stimulates enthusiasm for small equities. The mid-cap equities, however, may benefit from this lack of interest with good prospective performance. This article examines three popular U.S. mid-cap equity indexes, the Russell Mid-Cap Index, the CRSP Mid-Cap Index, and the S&P 400 Mid-Cap Index, analyzing their compositions, performance statistics, factor exposures, and potential roles in portfolios. The study confirms the existence of the mid-cap premium and finds that exposures to the size and profitability factors may explain this premium. The mid-cap premium may help investors improve portfolio performance without adding significant extra risk, yet investors must fully understand the specific mid-cap index they intend to use to avoid causing distortions to their portfolios.

Market Efficiency in India: An Empirical Study of Random Walk Hypothesis of Indian Stock Market NSE Midcap

As long as financial markets are concerned, for many years’ economists, statisticians and financial analyst have been interested in developing and testing models of stock price behaviour and their forecast. This study examines whether the Indian stock market is efficient if the stock returns follow a random walk. The study employs daily closing prices of NSE Midcap 50 Index for a time period of 15 Sept 2010-28 Nov 2014. The existence of random walk for NSE Midcap Index has been examined through autocorrelation, Q-statistics and the run test and finds that the Indian stock market was not efficient in the weak form during the testing period. The results suggest that the stock prices in India do not reflect all the information in the past stock prices and abnormal returns can be achieved by investors through exploiting the market inefficiency.

An empirical and analytical study of the fund performance and stock selection abilities of selected mutual funds in India

In view of recent global and domestic events like Brexit, global terrorists attacks in Europe, Syrian crisis, Economic Protectionist policy calls in USA, slow growth in the Chinese economy, Demonetization of currencies in India among others, volatility in the Indian markets has increased in last one year, 2015–16. This has impacted the fund returns in the short run, even in different categories of funds. Hence, the present study aim to evaluate the fund performance using Sharpe ratio, Treynor Ratio, Jensen's alpha and Fama's net selectivity models using daily Net Asset Values (NAV) for 50 schemes, 10 each from 5 categories namely Large cap funds, Small and mid-cap funds, ELSS funds, Index funds and Balanced funds, the sample being selected from the CRISIL Mutual Fund Ranking List: Quarterly Ended September 2016. The paper aims to look whether there has been the existence of differences between fund returns and market returns, whether funds have met investor expectations under the CAPM model and the stock selection abilities of fund managers in these volatile marketscenarios. The findings indicate that there was no significant difference between fund returns and market returns. Further among the categories of funds, Index funds were under performers as compared to other categories. Additionally, as per Fama net selectivity model, a majority of the fund managers were found to have positive stock selection abilities.

Board structure, ownership concentration and corporate performance: Italian evidence

This paper investigates the interplay between board-level governance characteristics, ownership concentration and firm performance in the Italian corporate landscape, which is characterized by high (though varying) degrees of ownership concentration. The empirical setting of this study is the Italian stock market and specifically a sample of non-financial firms included in FTSE MIB and mid-cap index of Milan stock exchange, spanning a five-year time period from 2011 up to 2015. We regressed an accounting proxy for firm performance, namely the return-on-asset (ROA) ratio, on several board-level governance variables and specifically board size, board independence, CEO-chairman duality and audit committee (ACD) full independence. In doing so, we also controlled for the impact of different levels of ownership concentration by partitioning the sample into firms with lower and-higher-than-median values of ownership concentration (OC). The empirical results indicate that board characteristics differently impact performance in firms with lower levels of OC compared to firms with higher OC. Specifically, in lower-OC firms, board independence and AC full independence have a negative impact, whereas CEO duality (either alone or interacted with board independence) has a positive impact on performance. Conversely, higher-OC firms benefit from a large board size and are negatively affected by AC independence, while the remaining variables are not significant. The key insight to be gained from our evidence is that the individual and interaction effects of board-level mechanisms may be contingent on the presence of other governance mechanisms (in this instance, the degree of ownership concentration). As such, this research adds to the existing literature questioning the ‘one-size-fits-all’ approach to corporate boards. In terms of practical implications, our findings support the notion that firms might consider the potential interaction and substitution effects between governance mechanisms and structure boards accordingly

Volatility Spill-over between the JSE/FTSE Indices and the South African Rand

In this paper the inter-market relationship between the South African Rand and the 5 main indices of the Johannesburg Stock Exchange was investigated. The dataset used in this paper was the daily closing values, from January 2002 to end September 2014. A multivariate CCC-GARCH (1,1) model was used to test the spill-over effects and the impact of shocks into both market. The Rand is more volatile to market shocks compared to the JSE/FTSE's All Share Index (J203), Top 40 Index (J200), Midcap Index (J201), but less volatile to market shocks than JSE/FTSE's Small Cap Index (J202) and Fledgling Index (J204).

A Quantitative Comparison of the Financial Returns of Index ETFs and Matched Index Mutual Funds

Investments in exchange traded funds (ETFs) have gained significant popularity among the financial investors.ETFs track industry-based indexes. Index mutual funds also track industry-based indexes. The financial investorsdo not have a documented analytical method to compare the financial returns of index ETFs and matched indexfunds. We have performed quantitative comparisons of the financial returns of index ETFs and matched indexmutual funds with the use of nonparametric Kruskal-Wallis hypotheses tests, assuming that the financial returnsof index ETFs and matched index mutual funds are independent. We have tested the null hypotheses that themedians of the distributions of the Sharpe ratios and the risk-adjusted buy and hold returns of the S&P 500 index,large cap index, mid cap index, small cap growth index, REIT index, and total bond market index ETFs are asthe same as the medians of the distributions of the Sharpe ratios and the risk-adjusted buy and hold returns of thematched S&P 500 index, large cap index, mid cap index, small cap growth index, REIT index, and total bondmarket index mutual funds. The time periods of comparison have been from the inception dates of ETFs till theend of 2013. The findings from this research work suggest that we do not reject the null hypotheses that thedistributions of the Sharpe ratios and the risk-adjusted buy and hold returns of index ETFs and the distributionsof the Sharpe ratios and the risk-adjusted buy and hold returns of matched index mutual funds have the samemedians during the time periods that we have tested.

Stock Market Integration of India and USA: A Study on Small and Medium Enterprises

Small and Medium Enterprises (SMEs) form the backbone of manufacturing sector and have become the growth engine of economic development in the world. It is to be noted that world over, half of two-thirds of all businesses are SMEs and in many regions, this proportion is still higher. SMEs are capable of creating jobs with least amount of capital and in dispersed locations, which make SMEs attractive to the policy makers. The main aim of this study is to analyze the stock market integration of Small and Medium Size Enterprises in India and USA by analyzing the sample indices. This paper examined the stock market integration using three sample Indian Indices (CNX SMALL CAP, CNX MID CAP and CNX Nifty) and three sample USA Indices (like Dow Jones U.S. SMALL CAP, Dow Jones U.S. MID CAP index and Dow Jones Industrial Average). An attempt has been made to examine the Normality, Interrelationships and Causality of returns between sample indices of India and USA.

A Study of Risk and Return of Different Sectors During Different Phases of Stock Market During 2007-2009 in India

Stock Market is ever green field for Investment and good choice of investment provides very lucrative scope. But it is very difficult to select companies for investment as there are number of companies listed in different stock exchanges. In this paper I have tried to catagorise different stocks on the basis of Market Capitalisation and study them on the basis of performance of different Indices of Bombay Stock Exchange related to different Capitalisation Stocks i.e. Sensex for Large Cap Stocks, Mid Cap Index for Mid Cap Stocks and Small Cap Index for Small Cap Stocks. For my study I have used daily value of selected Indices from January 2007 to December 2009. In this study I have found that there is no major difference in risk and return of different capitalisation stocks, but there is significant difference in risk and return of same stocks in different phases of stock market i.e. Bearish Trend, Consolidation Period and Bullish Trend.

Portfolio analysis of intraday covariance matrix in the Greek equity market

The intraday nonparametric estimation of the variance–covariance matrix adds to the literature in portfolio analysis of the Greek equity market. This paper examines the economic value of various realized volatility and covariance estimators under the strategy of volatility timing. I use three types of portfolios: Global Minimum Variance, Capital Market Line and Capital Market Line with only positive weights. The estimators of volatilities and covariances use 5-min high-frequency intraday data. The dataset concerns the FTSE/ATHEX Large Cap index, FTSE/ATHEX Mid Cap index, and the FTSE/ATHEX Small Cap index of the Greek equity market (Athens Stock Exchange). As far as I know, this is the first work of its kind for the Greek equity market. Results concern not only the comparison of various estimators but also the comparison of different types of portfolios, in the strategy of volatility timing. The economic value of the contemporary non-parametric realized volatility estimators is more significant than this when the covariance is estimated by the daily squared returns. Moreover, the economic value (in b.p.s) of each estimator changes with the volatility timing.

Volatility Characteristics of Indian Midcap Index Using GARCH and EGARCH

This paper studies volatility characteristics of the Indian CNX midcap index and contrasts with the large cap Nifty. An EGARCH model is fitted to daily returns for 2010 and is subjected to an out-of-sample back test. The study finds differences in volatility behavior of the indices. The Midcap index has asymmetric response to negative shocks (irrespective of their size). The Nifty reacts asymmetrically only to large negative shocks. The EGARCH fits midcap index better than GARCH in back test. The study has implications for modelling of volatility and option pricing. This is the first study on the Indian midcap index.

Expected Utility, Prospect Theory and Asset Pricing

Investors base asset valuation decisions on current day movements in asset and market returns. This is shown in the risk-return relationship of the simple asset pricing model using a four-way partition of daily returns. The partitioning is derived from current movements in individual asset and market returns. The underlying behavioral theory is a valuation framework that generalizes von Neumann-Morgenstern expected utility and allows for some commonly observed anomalies. We test key elements of Kahneman and Tversky's (1979) prospect theory and find reference dependence, asymmetric valuation of gains and losses, and nonproportional marginal sensitivity to large changes in expected returns in 1986-2000 data for 100 companies: the Dow-Jones 30 industrials and 30 and 40 companies selected at random from the S&P mid cap and small cap index lists respectively.

Intraday Price Formation in U.S. Equity Index Markets

AbstractThe market for U.S. equity indexes presently comprises floor‐traded index futures contracts, exchange‐traded funds (ETFs), electronically traded, small‐denomination futures contracts (E‐minis), and sector ETFs that decompose the S&P 500 index into component industry portfolios. This paper empirically investigates price discovery in this environment. For the S&P 500 and Nasdaq‐100 indexes, most of the price discovery occurs in the E‐mini market. For the S&P 400 MidCap index, price discovery is shared between the regular futures contract and the ETF. The S&P 500 ETF contributes markedly to price discovery in the sector ETFs, but there are only minor effects in the reverse direction.

An Index Is an Index Is an Index?

Before June 1999, Deutsche Borse AG published two parallel index values, one calculated from floor prices and the other from Xetra prices. Since 1999, Deutsche Borse has calculated the DAX blue-chip index and the MDAX mid-cap index using only the prices of the electronic trading system Xetra. This paper analyzes the quality of the two indexes empirically. The results allow us to evaluate the decision taken by Deutsche Borse AG. We find that the Xetra-DAX is superior to the floor-DAX, but that the Xetra-MDAX is inferior to the floor MDAX. Our analysis also provides insights on the relative merits of floor and screen trading systems.

Stock Price Effects Associated with Index Replacements in Germany

The presented paper addresses the question whether there is a stock price reaction to index replacements on the German stock market. Although it is well known from the empirical literature, which is predominantly related to the US stock market, that an index replacement has a strong impact on stock prices, it is still an open question, whether this stock price adjustment is only transitory or persistent. In order to shed new light on this issue, this paper analysed inclusions into and deletions from the two most important German stock indexes, namely the blue-chip index DAX and the mid-cap index MDAX. Unfortunately, also our evidence seems to be rather mixed with respect to the above mentioned hypotheses. We found a strong abnormal price impact on the day of the announcement of the index replacement. Stocks included in the index rose by 1.72 percent on the announcement date, while stocks deleted form the index fall by 1.19 percent on that day and by a further significant 8.76 percent up to the replacement day. Both reactions were statistically significant and they seem to be persistent, as we found no indication for a reversion in the stock price movement during the following weeks. This evidence does not fit into the price pressure hypothesis. The same is true for our finding that although absolute price reactions on the announcement date are very similar for both type of index replacements abnormal trading volume reactions are larger and more significant for index inclusions. We also found some evidence against the liquidity hypothesis. Especially, an index replacement seems not to have an impact on stock price volatility and price reactions on the announcement date are not correlated with long run volume reactions. Therefore, our evidence may support the imperfect substitute hypothesis, although we found a weakly significant correlation of price and volume reactions on the announcement date only for inclusions. Of course, the economically interesting question remains why investors and fund managers are willing to pay a premium for stocks included in an index.

Intraday Price Formation in US Equity Index Markets

The market for US equity indexes has traditionally comprised floor-traded index futures contracts and the individual markets for the component stocks. This picture has been altered by the advent of exchange-traded funds (ETFs) that mirror the indexes, electronically-traded, small-denomination (E-mini) futures contracts, and (for the S&P 500) a family of sector ETFs that break the index into nine components. This paper empirically investigates price discovery (price leadership) in this new environment. The specifications are estimated at very fine (up to one second) time resolution. The principal findings are as follows. - For the S&P 500 and Nasdaq-100 indexes, the index market comprises an ETF, a regular floor-traded futures contract and an E-mini futures contract. The paper finds that most of the price discovery for both indexes occurs in the E-mini markets: price changes in the E-mini futures prices generally lead those in the regular futures contracts and the ETFs. - The market in the S&P 400 MidCap index comprises only the ETF and the regular futures contract. Both securities contribute substantially to price discovery, but the ETF appears to dominate. - The sector ETFs can closely replicate the S&P 500 ETF. Nevertheless, trading activity across the sector ETFs varies considerably. The most actively traded sector (technology) contributes a modest amount to price discovery in the overall index. The other sector ETFs play only a minor role.

Index Futures Trading and Stock Return Volatility: Evidence from the Introduction of Mid Cap 400 Index Futures

AbstractThe MidCap 400 stock index is used to provide new evidence on the relation between stock index futures trading and stock return volatility. The study documents a significant decrease in return volatility and systematic risk, and a significant increase in trading volume for the MidCap 400 stocks after the introduction of the MidCap index. A control sample of medium‐capitalization stocks, however, exhibits similar contemporaneous changes in these measures. The MidCap stocks and the control stocks also experience a significant decrease in volatility and an increase in volume after the introduction of MidCap 400 index futures. Thus, the study finds no difference in the behavior of the MidCap 400 stocks and the control stocks and no evidence of a relation between index futures trading and volatility in the stock market.