A Conversation On Equity Market Anomalies !!

"A deviation from the common rule, type, arrangement, or form" is an anomaly, says the thefreedictionary.com 

In this blog we will talk about some of the interesting research discoveries relating to patterns in stock market returns and prices !

One of the most popular anomalies that most of us have heard about is -

The January Effect 

It says that, the small cap stocks tend to give handsome return during the first few trading days of the new financial year compared to the large and mid cap stocks. The effect was first noticed by investment banker Sydney B.Watchtel around 1942. Although, this phenomenon is been observed since 1925, wherein most of the small cap stocks have outperformed the broader market in the first half of the January according to Keim B.Donald.

The effect is now less evident as markets have adjusted to it and it was more related to the US markets.  An attempt to check the impact of the same aspect in Indian markets, but the market returns did not longer demonstrating any significant predictable patterns.

Day effects

An unusual good performance by stocks on the day prior to market closing holidays was observed by researchers and weekends are considered to be bad for stocks as it is observed that companies and governments tend to release bad news on the weekends.

• The Monday Effect says, “ Don't sell your stocks on (blue) Monday” and that stocks tend to fall during the first forty five minutes of the trading day and then trade as any other day of the week.
  
• Daily returns are believed to be strong on Wednesday and Friday and prices tend to rise during the first forty five minutes and then trade flat.

Political Cycle Effect

Pattern of abnormally high annual returns during the third and last year of administration is observed in few countries by researchers. The reason attributed is that high returns in the period just above the next election makes the voters optimistic.

Spin off Anomaly

Spin off of smaller companies from larger organizations often lead to favorable stock market performance.

Stock Split Announcements

It is observed that stock split announcements have no effect on the market value of the firm. We may see a contrary where the price gets adjusted initially and there are cases where there is a significant increase in the market capitalization of the stocks after couple of years.

Thus, whenever inexplicable patterns of abnormal stock market returns are detected in empirical studies of a stock market, a return anomaly is said to be found. However, this is related to the efficiency of markets as described under Efficient Market Hypothesis. In a perfectly efficient market, good news results in a sharp upward spike in shareholders returns on the announcement day and bad news results in a downward spike on the announcement day.  In post announcement period, there should be no drift and returns are believed to be random in efficient markets.

There are many other studies questioning the validity and application of the above mentioned in various markets. The above mentioned is a crux of various empirical findings and it is for the reader to decide his course of action.

Land (Paradise) Lost !

Is it really the "Banana Republic" we are living in !?
Where the hell are we headed !?
I am sure each of us must be somewhere have though consciously or unconsciously as to where are we heading, with women, kids not safe, with n numbers of scams, with rupee dying a slow death and with economy in abyss !And on the top of that a desperate government who is passing half-witted, vote bank oriented bills like that of "Food Security" and "Land Acquisition" :-|

As if it was not enough that we are still trying to balance the ever widening CAD and coming to terms with a 4.5-5.5 ranged GDP figure, government as if deliberately trying to derail us from economic growth and spending out tax-payer's, OUR money without any proper plan for it.

This post is supposed to talk about the recently passed Land Acquisition Bill !
Is it really a better deal, or it just another self proclaimed one by our very own people at helm.

Lets first take a look at the framework of the bill and then we can discover it again that majorly these provisions are more of the deterrent rather the facilitators of "better deals" for landowners (read farmers as they form the vast majority of those who are targeted). Not a single provision in my mind is in the interest of the intended beneficiaries.

Let me just talk about certain inferences according to the provision of the Act -

• Private companies are required to accomplish resettlement and rehabilitation in case the land acquired is more than or equal to 100 acres in Rural Areas and more than or equal to 50 acres in Urban Areas.
• Every acquisition requires a ‘Social Impact Assessment’ by an independent body in consultation with the Gram Panchayat. (And what are the parameters for the same, how long will it take !?)
• 80 per cent consent of the landowners, including Project Affected People, is now required for acquisition. 
• A maximum of five per cent irrigated, multi‐cropped land may be acquired in a single district. 
• For the same project, viz. railways, highways, ports, power, irrigation projects, ‘consent’ requirement is only for private companies and not for PSUs. (Isn't this monopoly and abuse of power !?) 

A huge developing voracious economy like ours is starving to consume thousands of projects which will need huge reserves of land exceeding 100 acres to sustain its growth rate. Therefore it is conceivable that any business entity wanting to feed our economy (or may be feed on our economy) with development will now have to play the role of a rehabilitator. (wow, such an ecosystem for growth) And where is the guarantee that a business entity wanting to earn profit will do justice to resettlement !?
Isn't it like creating a third party who can be comfortably blamed for shoddy development !? (Whoa, masterstroke, well played Mrs. Gandhi)
And it will definitely adversely impact on already dull value proposition of such projects by enhancing time and cost and bribes and God knows what more :(

“Social Impact Assessment” sounds too good eh !?
That too by an independent body :-o
Isn't it like complicating the process and virtually stopping them (the ones who don't pay enough to the politicians, bureaucrats, babus, peons) 
In an ideal world, a progressive government (ours doesn't look like one) should execute annual surveys /studies to identify land resources having the least social impact and mark such zones for developing and establishing such projects.
A "Social Impact Assessment" (no matter how good the intent may be) done on a case-to-case basis will completely miss out the holistic impact can be seen as future provisional clearances based on nothing but whims and fancies of "independent bodies" created by the authorities under political influence for the purposes of clearing (and of course earning) and obstructing  such acquisitions. And needless to say that these types of decisions will lead to more chaos, more lawsuits, and unplanned development and will impact society in a manner which is definitely not positive.

Getting 80 per cent majority of not only the Landowners but also the affected parties for acquiring the land (are you kidding me) is as ridiculous as Digvijay Singh :-|
The rich and powerful will undoubtedly deploy the services of "Gundas" or "Bhais" or "local leaders" or "panchayats" to get the consent, leaving the poor landowner (farmers) with an extra nightmare to deal with and eventually leaving him with pennies for the land :(
On the flip side, these services of Gundas and the likes can also be used as an arm twisting tool for extracting extra money from multinationals and business entities.

But the title of most pretentious provision goes to the pricing part. Earlier the Act provided for determination of land prices basis market value, now the Act has come up with an exclusive method of land pricing. The new method says - market value will be the higher of either (a) the value specified for stamp duty, or (b) the average of the top 50 per cent by recorded price of sale of land in the vicinity.
In rural areas, the market value is doubled, while it remains the same for urban areas. Moreover, the value of all assets (difficult to count and value) including trees, buildings, etc. on the land also needs to be added. On this amount, a 100 per cent solatium (extra compensation for forcible acquisitions) is added to arrive at the final compensation figure. In case of urgent acquisitions, a further 75 per cent needs to be paid.

As a result the land prices in the rural area will go up by at least 4 times the market value, and might as well get doubled in urban spaces, thus fuelling the real estate bubble. In coming times, land will be the luxury of only the elite class with large amounts of unaccounted money. This falsely accentuated real estate prices will attract hardly any real investors, putting our economy in further doldrums. And who knows, a lot of land might already amassed by the kinsfolk of the present rulers and this might serve as a great gimmick to grow their already huge money reserves exponentially. (afterall elections are hardly anytime away)

Whatever it is, I am sure it will not bring prosperity to the farmers and will add nothing but more empty promises to their plates already full with the same. Looks like the bill is penned in the office of some strategists who never actually visited a village.

Inflated costs, arduous procedures, elongated time will far from attract genuine investors :-| 

And what more, it is not even healthy for farmers :-(

The benefiting party in my mind after scrutinising the whole proposition is none but GOI, they have been working hard to quibble a promising economy for their own immediate gains.