A Vector Autoregressive Market Model for IT Sector Stocks in India
Abstract
This study proposes a vector autoregressive form for the market model and tests its significance against the market model for information technology (IT) sector stocks in the Indian stock market. The analysis was performed for a sample of nineteen IT sector stocks listed on the National Stock Exchange of India, of which nine stocks were large-cap, six were mid-cap, and four were small-cap. The study period considered was Jan. 1, 2018 – Dec. 31, 2018.
The key contribution of the study was the finding that the vector autoregressive model is a better model of stock returns than the market model for IT sector stocks. Thus, IT sector stocks seem to react more to market movements from the previous day than on the day itself. The implication for asset pricing modelling is that systematic risk may be further decomposed into a component corresponding to sensitivity to market movements on the day and a component corresponding to sensitivity to market movements on the previous day. The asset pricing model would be extended to include market risk premia for both of these components of systemic risk.
Keywords: market model, vector autoregressive model, IT sector, asset pricing modelling, systematic risk.
Copyright (c) 2021 Mihir Dash, Rita S.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Submission of an article implies that the work described has not been published previously (except in the form of an abstract or as part of a published lecture or academic thesis), that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, will not be published elsewhere in the same form, in English or in any other language, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.
Copyrights for articles published in MTI journals are retained by the authors, with first publication rights granted to the journal. The journal/publisher is not responsible for subsequent uses of the work. It is the author's responsibility to bring an infringement action if so desired by the author.
