ISSN: 2249-8834 Z I R A F EXCEL International Journal Of Multidisciplinary Management Studies November 2011 - Volume : 1 - Issue : 3 A Research Publication of Vision : Sharing Research for Better World EXCEL International Journal of Multidisciplinary Management Studies Vol.1 Issue 2, November 2011, ISSN 2249 8834 Online available at http://zenithresearch.org.in/ EXCEL INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY MANAGEMENT STUDIES (EIJMMS) VOL.1 - ISSUE 2; NOVEMBER 2011 S.NO. CONTENTS PAGE SEMI-STRONG FORM OF PRICING EFFICIENCY OF INDIAN STOCK MARKET – AN EMPIRICAL TEST IN THE CONTEXT OF STOCK-SPLIT ANNOUNCEMENTS 1 1-13 PRITHUL CHAKRABORTY LINKAGE BETWEEN ORGANIZATION CULTURE AND JOB SATISFACTION 2 14-28 SALILA KUMAR PATTNAIK THE EFFECT OF MARKETING EFFECTIVENESS AND EFFICIENCY ON THE MARKETING PERFORMANCE OF MEDIUM AND LARGE FINANCIAL SERVICE 3 ENTERPRISES IN ETHIOPIA 29-46 TEMESGEN BELAYNEH ZERIHUN, V. SHEKHAR MARKETING OF ORISSA HANDICRAFTS: A STUDY ON CHALLENGES & OPPORTUNITIES 4 47-63 DR MANJUSMITA DASH NUTRIENTS: PRE, POST AND DURING EXERCISE 5 64-69 DR. ARVIND MALIK IMPACT OF RBIs CREDIT POLICY AND STANDARD &POOR’s RATINGS ON BANKEX STOCKS: AN EVENT STUDY 6 70-80 DR. D. MAHESHWARA REDDY, K. V. N. PRASAD THE IMPACT OF TRAINING ON KNOWLEDGE TRANSFER IN HIGHER EDUCATION 7 81-91 DR. D. G. KULKARNI, DR. POORNIMA CHARANTIMATH, DR. KIRTI SHIVKUMAR MARKETING AUDIT- AN IMPORTANT TOOL TO DETERMINE STRENGTHS AND WEAKNESSES OF THE COMPANIES 8 92-108 ARPIT LOYA TRENDS OF SELECTED MALLS TOWARDS CONSUMERS 9 109-122 CHIRAG V. RAVAL, DR. RAJENDRA V. RAVAL, DR. PINAKIN R.SHETH INNOVATIVE APPROACH TOWARDS DELIVERING EDUCATION 10 123-132 MS. SHIKHA GUPTA TRY ADVERTORIAL TO OVERCOME THE CHALLENGES OF COMMERCIAL CLUTTER 11 133-143 J. J. SOUNDARARAJ TRAINING TECHNIQUES IN MARUTI DRIVING SCHOOL - A TRAINEE VIEW 12 144-150 NISHA RATHORE TALENT A CRITICAL DRIVER OF CORPORATE PERFORMANCE AND COMPETITIVE ADVANTAGE 13 151-161 DR. MS. ZARTAJ KASMI ROLE OF WOMEN IN ENVIRONMENTAL CONSERVATION 14 162-167 RENU SHARMA, DR. BALJIT KAUSHIK RETAILING IN INDIA: AN ANALYTIC VIEW OF THE SUNRISE INDUSTRY 15 168-184 www.zenithresearch.org.in www.zenithresearch.org.in DR. K. L. RATHOD EXCEL International Journal of Multidisciplinary Management Studies Vol.1 Issue 2, November 2011, ISSN 2249 8834 Online available at http://zenithresearch.org.in/ SEMI-STRONG FORM OF PRICING EFFICIENCY OF INDIAN STOCK MARKET – AN EMPIRICAL TEST IN THE CONTEXT OF STOCK-SPLIT ANNOUNCEMENTS PRITHUL CHAKRABORTY* *Professor, Centre for Management Studies, JIS College of Engineering, Kalyani, West Bengal, India. ABSTRACT The exponential growth of the Indian stock market provides a huge potential for its achievement of the pricing efficiency at a higher level. The present study aims to examine whether the Indian stock market is pricing efficient in its semi-strong form. Such examination is made in the context of the price reaction to the announcement of stock splits witnessed by 17 constituent stocks of S&P CNX Nifty during the period from February 2000 to January 2010 by application of the market model of the event study methodology. Although no statistically significant abnormal return is found to be generated on and around the announcement day, the cumulative average abnormal returns for most of the time intervals in the pre- and post-announcement periods are statistically significant. However, it is observed that the cumulative average abnormal returns for the shorter time intervals around the announcement day are statistically insignificant. Thus the study fails to provide any strong and consistent evidence in support of the semi-strong form of pricing efficiency of the Indian stock market. KEYWORDS: Abnormal return, Estimation window, Event window, Pricing efficiency, Semi-strong form, Stock split. ______________________________________________________________________________ I. INTRODUCTION The basic function of a stock market, be it primary market or secondary market, is to allocate and channelize the scarce private or domestic savings and other idle resources into the most productive investment areas of the economy in a useful and economic manner. The economic development of a country greatly depends on how effectively its stock market is able to allocate the resources in most productive investment areas (i.e., allocational efficiency of the market). One of the basic conditions to be satisfied by a stock market for being an efficient one is free flow of relevant information to all market-participants, and quick and accurate reflection of all available and relevant information in the prices of the stocks (Tinic and West,1979). In a perfectly efficient market an investor cannot reap abnormal profit by having any information, even any special information not publicly available, and thereby cannot consistently “beat” or outperform the market. One of the important rudiments of the allocational efficiency of the stock market is its pricing efficiency. The pricing efficiency of a stock market is determined by the speed and accuracy with www.zenithresearch.org.in which all available and relevant information are incorporated in the stock prices. The condition that current stock prices reflect all available information can be expressed as follows: 1 EXCEL International Journal of Multidisciplinary Management Studies Vol.1 Issue 2, November 2011, ISSN 2249 8834 Online available at http://zenithresearch.org.in/ E (Pt+k / фt) = E (Pt+k / Pt) where E = Expected value operator Pt = Price of the stock at time t Pt+k = Price of the stock at time t+k фt = Set of information available at time t. The above equation implies that the information contained in фt is impounded in the current stock price Pt and the information set, фt, cannot be used by the investors to earn super-normal profits. The essential criteria of pricing efficiency are: (i) easy and economical availability of information to all buyers and sellers, (ii) presence of a large number of buyers and sellers with their easy access to the market, (iii) awareness of all investors regarding the effect of available information on the current price and (iv) capability of the market to quickly assimilate the information by adjusting the stock prices up and down (Fama,1969). The literature of capital market efficiency provide three different forms of pricing efficiency depending on the contents or coverage of the term “ available information” which are reflected in the current stock prices. These three forms are: (i) weak form of efficiency where the contents of “available information” are the information contained in the historical series of prices and trading volumes, (b) semi-strong-form of market efficiency in which case all publicly available information regarding the firms under study (e.g. fundamental data on firms’ financial performance, corporate reports, corporate announcements relating to dividend policy, stock split, right issue, etc.) are the contents of “available information” and (c) strong-form of market efficiency where “available information” include all relevant information, public as well as private or “inside”. The form or level of efficiency of a market is significantly influenced by certain frictions (viz., transaction costs, information costs, information asymmetries and so on) that the market witnesses. Lower market frictions lead to an increase in the number of market participants, rise in trading volume and thereby enhancing the liquidity of the market which, in turn, facilitates free flow of information to all market participants and instantaneous and accurate adjustment of stock price to such information. Although perfectly strong form of market efficiency is a theoretical phenomenon, many empirical studies reveal that the developed markets can boast of having higher level of pricing efficiency than their counterparts in the emerging economies. Since the mid-1990s liberalization and globalization of Indian economy have brought about a radical reform and structural transformation in Indian stock market. This has been manifested by many events like establishment of the regulatory body SEBI, introduction of the online trading, formation of National Securities Clearing Corporation (NSCCL), setting up of National Securities Depositories Limited (NSDL) and Central Depository Services (India) Limited (CDSL) to facilitate demat trading, opening up of the market for portfolio investment by the foreign institutional investors (FIIs), entry of new institutions like merchant banks, mutual funds, venture capital funds, etc. and greater participation of banks and financial institutions in capital www.zenithresearch.org.in market related activities, introduction of derivatives and other innovative financial instruments in the market, permitting Indian companies to issue GDR / ADR in European and American 2 EXCEL International Journal of Multidisciplinary Management Studies Vol.1 Issue 2, November 2011, ISSN 2249 8834 Online available at http://zenithresearch.org.in/ markets and so on. All these have increased the depth and vibrancy of the Indian stock market. This is evident from a substantial rise in the market capitalization of equity shares on Indian bourses from Rs.5,07,272 crore at the end of 1995-96 to Rs.1,21,74,792 crore at the end of 2009- 10 (i.e, 24 times rise over a period of 14 years), an exponential growth in turnover from Rs.2,27,368 crore in 1995-96 to Rs.55,18,470 crore in 2009-10 (i.e., about 2327% growth over a period of 14 years), a spectacular increase in the traded value ratio ( i.e. total turnover to GDP ratio) from 39.33% in 2002-03 to 89.50% in 2009-10 and so on. With the growing aspirations of the domestic as well as foreign investors for participating in Indian stock market, increasing rate of information flow in the market by the courtesy of information and communication technology, immense opportunities for trading in a wide range of stocks, stock indices and corresponding derivatives, wide scope is there for the Indian stock market to improve the level of its pricing efficiency and thereby stimulating the economic growth of the country. This provides a fillip to the research community to empirically examine the pricing efficiency of the Indian stock market.