Market capitalisation, cross-correlations, the lead/lag structure and microstructure effects in the Indian stock market [An article from: Journal of ... Financial Markets, Institutions & Money]

This digital document is a journal article from Journal of International Financial Markets, Institutions & Money, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
The lead/lag relationship between portfolios comprising large and small cap firms is analytically derived in terms of their speeds of adjustment and degrees of thin trading. Using a number of Indian equity index series that differ in their market capitalization characteristics, large cap indices are found to lead small cap indices and to have higher speeds of adjustment towards intrinsic values. However, pure thin trading effects and an interaction effect between thin trading and speeds of adjustment are found to make significant contributions to the lead/lag effect. An empirical analysis of the underlying intrinsic value process using a reduced form model developed in the paper indicates that a small degree of overreaction is present in intrinsic values series.