This paper fundamentally looks at the novel concept of Smart Beta investing in constructing a more efficient and well-diversified alternative investment. Smart beta has been a popular investment philosophy, although emerging countries have been slower to adopt and execute it. In this way, the study investigates the existence, performance, and robustness of smart beta strategies in a divergent financial market. Moreover, it is an initial attempt to integrate the framework of stock selection and stock weighting to construct and test smart beta strategies against the traditional Indian market benchmark (S&P BSE 500). The findings show that smart beta investing results in a better risk-return profile on an absolute and risk-adjusted basis. Furthermore, the results demonstrate the consistency and robustness of smart beta strategies in different market conditions and display their outperformance even in bearish market conditions.
This efficient indexation procedure allows us to construct proxies for the tangency portfolios whose risk/reward ratio is significantly better than those of cap-weighted indices.We use constituent data for the S&P 500 index to construct tangency portfolio
Robust Estimation of Return Comovements and Expected Returns
The study examines the market efficiency, multi-dimensions of liquidity, and their interconnectedness for the Emerging Indian Stock Market. In contrast to the extant literature, the current study involves testing the market liquidity considering multi-dimensions such as depth, breadth, immediacy, tightness, and resiliency. Second, the study used a battery of tests to determine efficiency, including the Ljung and Box, runs test, Bartel test, Variance ratio, and BDS tests. Furthermore, using five quintiles classified by market depth, the linkage of market efficiency and liquidity is also being investigated. The findings show that during the pandemic, the Indian stock market has been proven to be efficient, suggesting that there are no abnormal returns. Moreover, the research demonstrates that during the COVID-19 pandemic, large volumes of securities are traded quickly and at a lower price effect, but with higher trading costs for completing a market transaction. However, it is worth noting that increased liquidity equates to greater efficiency, while lower liquidity equates to inefficiency.
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