TESTING OF RISK ANOMALIES IN INDIAN EQUITY MARKET BY USING MONTHLY AVERAGE RISK & RETURN

Abstract

The objective of the research work undertaken is to examine the Risk Anomaly on the scrips traded in National Stock
Exchange. It is an approach which attempts to build a portfolio which maximizes returns for scrips while keeping volatility
at minimum. The volatility in the research undertaken is determined by the standard deviation of the stock returns. The
study is limited to those stocks whose derivatives are traded in the National Stock Exchange (NSE). The rationale behind
selecting such scrips is that they are traded in large volumes. The findings established high risk-high returns paradigm is
a fallacy in capital markets. The analysis gave higher average monthly rate of returns for low volatility stocks when
compared with high volatility and market portfolios. The probability distribution function was asymmetric and left skewed
with a fat tail indicated by kurtosis of less than three. Thus standard deviation which underestimates the potential down side
risks was done away with the computation of VaR and LPSD. The cumulative histogram of VaR also established increased
downside risks with higher probability for HV and market portfolio when compared with LV portfolio