Opinion - International Journal of Business Management (e-issn: 2277-4637 and p-issn: 2231 5470) Special Issue on Role of Statistics in Management and Allied Sciences Vol. 3 No. 2 Dec. 2013, pg. 79-88 COMPARATIVE ANALYSIS OF BOMBAY STOCK EXCHANE WITH NATIONAL AND INTERNATIONAL STOCK EXCHANGES Anil Chougule 1, A.K. Khamborkar 2* and S.D. Singh 3 1Department Of Economics, Sydenham College Of Commerce And Economics, B Road, Churchgate, Mumbai - 400 020; Email: anilchougule76@yahoo.com 2Department Of Statistics, Sydenham College Of Commerce And Economics, B Road, Churchgate, Mumbai - 400 020; Email:akhamborkar@gmail.com 3Department Of Mathematics, Sydenham College Of Commerce And Economics, B Road, Churchgate, Mumbai - 400 020; Email: drsunilsingh912@gmail.com *Corresponding Author ABSTRACT An important element of globalization trend has now been that exchanges are crossing national boundaries to extend their service, which has led to cross border integration; exchanges have begun to offer cross border trading to facilitate overseas investment options for investment. The Indian stock exchanges hold a place of prominence not only in Asia but also at the global stage. The Bombay Stock Exchange (BSE) is one of the oldest stock exchanges across the world. The major driving forces are liberalization and deregulation, ground breaking technological and financial innovations and a growing dedicated investor s base. In this paper, an attempt has been made to study the movement of Bombay Stock Exchange in comparison to other international stock market and to study whether Indian stock market (BSE's) returns and volatility are correlated to the returns and volatility of other stock market. Keywords: Correlation, Daily Returns, Returns, Volatility. 1.0 INTRODUCTION It is also seen that international financial markets have changed drastically over the past several decades. The major driving forces are: liberalization and deregulation, ground breaking technological and financial innovations and a Centre for Promotion of Multidisciplinary Research (CPMR)
Comparative Analysis of Bombay Stock Exchange with National and International Stock Exchanges - Anil Chougule, A.K. Khamborkar*, S.D. Singh growing dedicated investors base. The Indian stock exchanges hold a place of prominence not only in Asia but also at the global stage. The Bombay Stock Exchange (BSE) is one of the oldest stock exchanges across the world, while the NSE is among the best, in term of sophistication and advancement of technology. India has the highest number of companies listed in the stock market. Out of this, about 75 % of the companies are listed with the Bombay Stock Exchange. After India, United States has the highest number of companies listed (Mukherjee, 2007). At this backdrop, the objectives of the study are to study the movement of Bombay Stock Exchange in comparison to its international counter parts and to study whether Indian stock market (BSE's) prices and returns are correlated to the stock market returns and prices of other selected economy. The brief summary of the different leading stock exchanges is presented in table 1. Table 1: Leading National and International stock exchanges in the world Sr No Parameters Name of the Stock Exchange BSE NSE NASDAQ Tokyo Stock Exchange 1 Country India India USA Japan 2 Name of Indices SENSEX BSE-100 BSE- 200 BSE-500 Hong Kong Stock Exchange Hong Kong (China) NIFTY NASDAQ NIKKEI HKSE 3 Number of Companies Included SENSEX-30 BSE-100 BSE- 200 BSE-500 50 100 225 33 1.1 RESEARCH METHODOLOGY For the comparative analysis of the BSE and other stock exchanges some stock exchanges have been selected from developed market i.e. NASDAQ (USA), NIKKEI (Japan) and from emerging markets HKSE (China) and NIFTY (India). To study the correlation of India's stock prices (Returns) with other selected countries stock prices (Returns), Karl Pearson's correlation coefficient method has been used. For the comparative analysis of BSE and other stock exchanges, the period chosen for the study is from 1991 to 2009.
Opinion Sp. Issue Vol. 3 No. 2, Dec. 2013 e-issn: 2277 4637/ p-issn: 2231 5470 1.1.1 Rate of returns The present study has used the logarithmic difference of prices of two successive periods for calculation of return (Kaur, 2002). The logarithmic difference is symmetric between up and down movements and is expressed in percentage terms for easy comparability with the straightforward idea of percentage change. Thus, daily returns have been calculated as the difference between the natural logarithms of the daily closing prices on the consecutive trading days, while monthly returns have calculated as the difference between the natural logarithms of closing price on the first and last trading day of the month. where, loge is the natural logarithm, Pt and Pt-1 are the prices for the two successive period i.e. t and t-1 rt is the market return at the period t. 1.1.2 Inter Day Volatility As a concept, volatility is simple and intuitive. It measures variability or dispersion about a central tendency. To be more meaningful, it is a measure of how far the current price of an asset deviates from its average past prices. Greater this deviation, greater is the volatility. At a more fundamental level, volatility can indicate the strength or conviction behind a price move (Raju and Ghosh, 2004). The variation in stock price return between two trading day is called inter day volatility. Inter day volatility is calculated by logarithmic returns of Close to close share price of indices (Andersen et. al, 2000). For calculating close-to-close volatility, the closing prices of the BSE-SENSEX, BSE-100, BSE-200 and BSE-500 are taken. Close to close volatility is measured with the following formula (Jeyanthi, 2010) where n = The number of trading days rt = Close to close return (in natural log) r = Average of close to close return
Comparative Analysis of Bombay Stock Exchange with National and International Stock Exchanges - Anil Chougule, A.K. Khamborkar*, S.D. Singh 2.0 ANALYSIS 2.1 DESCRIPTIVE STATISTICS FOR DAILY MARKET RETURNS Table no. 2 depicts the descriptive statistics for daily market returns of BSE, NSE, NASDAQ, NIKKEI and HKSE for the period 1991 to 2009. The daily data had about 4000 observations of different stock exchanges (except NSE) and closing prices of respective indices are used to represent the market. The mean of daily market returns of all stock exchanges is observed to be in the range of 0.00037% to 0.00063%. The median of daily market returns of all markets observed to be near to zero and it remains between 0.0010% and 0.0090%. Volatility is measured by standard deviation and its square (Pandey 2005). All the indices show similar volatility in the range of 0.0002% to 0.0003%. The minimum volatility among the indices is observe in NIKKEI and whereas maximum is observed in BSE-SENSEX. Kurtosis measures the peak of the distribution (Gupta and Agarwal, 2011). The Kurtosis of all the indices are away from three therefore the weekly return is away from their respective means. A minimum return was lowest in NASDAQ i.e.-0.10%. The maximum return was highest in HKSE i.e. 0.16% during the study period 1991 to 2009. Table 2: Descriptive Statistics for Daily Market Returns for Various Stock Markets (1991-2009) Particulars SENSEX BSE 100 BSE 200 BSE 500 HKSE NAS- DAQ NIKKEI NIFTY Mean 0.001 0.001 0.001 0.001 0.000 0.000 0.000 0.000 Standard Error 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Median 0.001 0.001 0.001 0.002 0.001 0.001-9.762 0.001 Standard Deviation Sample Variance 0.018 0.018 0.018 0.018 0.018 0.016 0.016 0.017 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Kurtosis 5.376 6.297 7.005 5.392 8.622 5.791 5.008 6.065 Skewness -0.041-0.057-0.134-0.484-0.004-0.049-0.105-0.153 Range 0.297 0.282 0.290 0.271 0.320 0.234 0.253 0.294 Minimum -0.137-0.127-0.134-0.124-0.147-0.102-0.121-0.131
Opinion Sp. Issue Vol. 3 No. 2, Dec. 2013 e-issn: 2277 4637/ p-issn: 2231 5470 Maximum 0.160 0.155 0.156 0.146 0.172 0.133 0.132 0.163 Sum 2.861 2.902 2.811 1.612 1.976 1.808-0.825 1.482 Count 4541 4541 4540 2594 4493 4789 4671 3729 Largest(1) 0.160 0.155 0.156 0.146 0.172 0.133 0.132 0.163 Smallest(1) -0.137-0.127-0.134-0.124-0.147-0.102-0.121-0.131 Confidence Level (95%) 0.001 0.001 0.001 0.001 0.001 0.000 0.000 0.001 2.2 YEAR WISE AVERAGE DAILY RETURN Table No. 3 reveals the year wise average daily return for various indices selected for study. It can be seen that for each indices separately the percentage daily average return of BSE Sensex was in the range of 0.003% to 0.31%, BSE-100 ranges from-0.01% to 0.27%, BSE-200 ranges between -0.011% to 0.28% and BSE- 500 indices ranging from 0.10% to 0.26%, while NASDAQ recorded from 0.01% to 0.18%, HKSE recorded percentage average returns between 0.04% to 0.14%, NIKKEI percentage average daily return ranges between 0.01% to 0.15% whereas NIFTY accounted 0.00417% to 0.23% during study period of 1991 to 2009. It can be also seen that, among all the individual observations the highest average daily return was earned by the BSE - Sensex in the year 1991. All ordinaries earned negative income in the years 2000, 2001, 2008 and the negative return was very high in BSE i.e. -0.35% in 2008 and it was very low i.e. 0.0129% in the year 1999 in NASDAQ. NASDAQ, HKSE, NIKKEI had negative returns for the three consecutive i.e. in the year 2000, 2001, 2002, and in 2008. It is also seen that average daily return of BSE and NSE moved in tandem with little difference. Table 3: Year wise Average Return for Various Stock Markets (Percentage) Year BSE- SENSEX BSE 100 BSE- 200 BSE- 500 NASDAQ HKSE NIKKEI NIFTY 1991 0.316 0.277 0.283-0.180 0.141-0.019-1992 0.167 0.142 0.158-0.057 0.100-0.124-1993 0.115 0.163 0.121-0.054 0.309 0.012-1994 0.069 0.049 0.036 - -0.013-0.150 0.050-1995 -0.101-0.116-0.149-0.133 0.084 0.003-0.112 1996-0.003-0.017-0.011-0.081 0.116-0.010-0.004
Comparative Analysis of Bombay Stock Exchange with National and International Stock Exchanges - Anil Chougule, A.K. Khamborkar*, S.D. Singh 1997 0.069 0.062 0.060-0.077-0.093-0.097 0.075 1998-0.074-0.063-0.050-0.132-0.026-0.040-0.080 1999 0.199 0.265 0.256-0.245 0.212 0.128 0.203 2000-0.093-0.102-0.122-0.127-0.198-0.047-0.128-0.063 2001-0.079-0.107-0.100-0.105-0.095-0.126-0.158-0.071 2002 0.014 0.027 0.057 0.063-0.150-0.090-0.084 0.013 2003 0.216 0.243 0.263 0.276 0.161 0.134 0.089 0.213 2004 0.048 0.060 0.057 0.063 0.033 0.057 0.030 0.040 2005 0.141 0.129 0.116 0.124 0.005 0.020 0.138 0.123 2006 0.153 0.137 0.133 0.131 0.036 0.131 0.027 0.134 2007 0.155 0.188 0.190 0.196 0.037 0.138-0.048 0.175 2008-0.302-0.327-0.338-0.354-0.205-0.292-0.224-0.297 2009 0.244 0.253 0.261 0.265 0.144 0.178 0.072 0.232 2.3 CORRELATION AMONG BSE AND OTHER NATIONAL AND INTERNATIONAL STOCK MARKETS Table no. 4 depicts the correlation matrix of BSE indices with other stock exchanges. It is found that, there exists a positive correlation among all indices of BSE and NASDAQ and HKSE during study the period of 1991 to 2009. NIKKEI is negatively correlated with BSE - Sensex, BSE-100 and BSE-200, but there exists a positive correlation between NIKKEI and BSE-500 during the same period. Nifty is positively correlated with all indices selected for study except NIKKEI. It is concluded that, there is a significant correlation between all the indices selected for study and BSE. Therefore, present study accepts the hypothesis that prices and returns of Bombay stock exchange are significantly correlated to the prices and returns of other selected stock exchanges. 2.4 RETURNS AND VOLATILITY OF STOCK EXCHANGES Table No. 5 exhibits annualized returns and volatility of different indices selected for study. It is seen that, from the return prospective, NASDAQ yielded negative returns in 1994, 2000, 2001, 2002 and 2008. During 1991 to 2009 its annual returns were ranging from 0.04% to 0.47%. From the volatility prospective NASDAQ shows highest annual volatility in 2000 i.e. 0.49% whereas lowest volatility in 1993 i.e. 0.12%. Thus, the annual returns and volatility of NASDAQ ranged from 0.03% to 0.46% and 0.11% to 0.49% respectively.
Indices SENSEX BSE-100 BSE-200 BSE 500 HKSE NASDAQ NIKKEI NIFTY Opinion Sp. Issue Vol. 3 No. 2, Dec. 2013 e-issn: 2277 4637/ p-issn: 2231 5470 Table 4: Correlation Coefficients of the Daily Market Returns for Various Stock Markets (1995-2009) BSE- SENSEX 1* BSE 100 0.998* 1* BSE 200 0.997* 0.999* 1* BSE 500 0.997* 0.998* 1.000* 1* HKSE 0.879* 0.878* 0.864* 0.894* 1* NASDA Q 0.438* 0.446* 0.426* 0.096* 0.716* 1* NIKKEI -0.278* -0.291* -0.292* 0.253* 0.896* -0.136* 1* NIFTY 0.999* 0.999* 0.998* 0.997* 0.896* 0.303* -0.136* Note: Coefficient are calculated from the data; * significant at 5% level 1* HKSE's annual returns recorded negative in 1994, 1997, 1998, 2000, 2001, 2002 and in 2008. It yielded highest annualized returns i.e. 0.42% in 2009 and lowest annualized returns i.e. 0.11% in 2000. From volatility perspective the annualized volatility is found to be 0.11% - 0.50% during the study period. NIKKEI recorded negative returns in 1991, 1992, 1996, 1997, 1998 (except 1999), thereafter from 2000-2002, and in 2007and 2008. It recorded highest returns i.e. 0.26% in 2003 whereas lowest returns i.e. 0.05% in 1991. The annualized volatility of NIKKEI is found to be 0.15% - 0.46% during the study period. It is seen that the annualized return of NIFTY was negative in 1995, 1996, 1998 and thereafter in 2008. The annualized average return of NIFTY is in the range 0.01% to 0.56% whereas annualized volatility is in the range of 0.19% to 0.44% during study period.
Return Volatility Return Volatility Return Volatility Return Volatility Return Volatility Comparative Analysis of Bombay Stock Exchange with National and International Stock Exchanges - Anil Chougule, A.K. Khamborkar*, S.D. Singh The Sensex recorded negative returns in 1995, 1998, 2000, 2001 and 2008. The annual average returns of BSE - Sensex is in the range 0.01 % to 0.32 % whereas annualized volatility of Sensex is in the range 1.08% and 3.36% during the same study period. It is concluded that range of annualized returns and volatility does not remain same in all indices selected for study. It is also seen that in the year 2001, 2002 and in 2008 all selected indices yielded negative returns. Table 5: Year wise Average returns and Volatility of Different Stock Exchanges (in %age) NASDAQ HKSE NIKKI NIFTY SENSEX Year 1991 0.47 0.15 0.35 0.18-0.05 0.21 -- -- 0.32 1.91 1992 0.14 0.13 0.25 0.23-0.31 0.30 -- -- 0.17 3.36 1993 0.14 0.12 0.77 0.22 0.06 0.20 -- -- 0.12 1.85 1994-0.04 0.12-0.37 0.30 0.09 0.18 -- -- 0.07 1.44 1995 0.35 0.13 0.21 0.20 0.06 0.23-0.26 0.19-0.10 1.26 1996 0.19 0.16 0.29 0.17-0.13 0.16-0.01 0.24 0.00 1.52 1997 0.21 0.19-0.22 0.40-0.19 0.27 0.18 0.28 0.07 1.64 1998 0.33 0.27-0.06 0.44-0.10 0.27-0.20 0.28-0.07 1.90 1999 0.63 0.27 0.52 0.26 0.30 0.20 0.51 0.29 0.20 1.82 2000-0.59 0.49-0.12 0.31-0.30 0.23-0.16 0.32-0.09 2.20 2001-0.15 0.42-0.28 0.28-0.23 0.29-0.18 0.26-0.08 1.71 2002-0.36 0.35-0.20 0.19-0.23 0.25 0.03 0.17 0.01 1.10 2003 0.37 0.22 0.30 0.17 0.26 0.23 0.54 0.20 0.22 1.18 2004 0.07 0.17 0.12 0.16 0.05 0.18 0.10 0.28 0.05 1.61 2005 0.04 0.13 0.04 0.11 0.35 0.14 0.31 0.18 0.14 1.08 2006 0.08 0.14 0.29 0.15 0.03 0.20 0.34 0.26 0.15 1.63
Opinion Sp. Issue Vol. 3 No. 2, Dec. 2013 e-issn: 2277 4637/ p-issn: 2231 5470 2007 0.07 0.17 0.32 0.25-0.18 0.19 0.44 0.25 0.16 1.54 2008-0.47 0.41-0.65 0.50-0.52 0.46-0.73 0.44-0.30 2.85 2009 0.33 0.28 0.42 0.34 0.23 0.27 0.56 0.33 0.24 2.19 3.0 CONCLUSION It is seen that year wise average daily return of BSE indices is higher than NASDAQ, HKSE and NIKKEI whereas average daily return of BSE indices and NSE/Nifty moved in tandem with little difference. There exists a positive correlation among all the indices of BSE and NASDAQ and HKSE. It is observed that NIKKEI is negatively correlated with BSE - Sensex but there is positive correlation between NIKKEI and BSE-500. Nifty is positively correlated with all indices selected for study. Returns and Volatility does not remain same in all indices selected for study. It is also seen that in the year 2001, 2002 and 2008, all selected indices yielded negative returns. 4.0 REFERENCES 1. Andersen, T.G, Bollerslev, T. and Cai, J (2000). Intraday and Interday Volatility in the Japanese Stock Market, Journal of International Financial Markets, Institutions and Money, Vol. 10, pg. 107 130 2. Gupta, Nupur and Agarwal, Vijay (2011). Comparative Study of Distribution of Indian Stock Market with other Asian Markets, International Journal of Enterprise Computing and Business Systems, Vol.1, Issue 2, pg. 2230-8849. 3. Jeyanthi, B.J.Queensly (2010). A Study of NSE of India, Serial Publication, New Delhi. 4. Kaur, Harvindar (2002). Stock Market Volatility in India, Deep and Deep Publication, Delhi. 5. Mukherjee, Debjiban (2007). Comparative Analysis of Indian Stock Market with International Markets, Great Lakes Institute of Management, Chennai, Vol. 1, Issue 1, pg. 39-71 6. Pandey, Ajay (2005). Volatility Models and their Performance in Indian Capital Markets, Vikalpa, Vol. 30, No.2, pg. 27 46.
Comparative Analysis of Bombay Stock Exchange with National and International Stock Exchanges - Anil Chougule, A.K. Khamborkar*, S.D. Singh 7. Raju, M. T. and Ghosh, Anirban (2004). Stock Market Volatility An International Comparison, Securities and Exchange Board of India (Working Paper Series No. 8).