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Article
Publication date: 27 September 2022

Sanjay Sehgal, Vibhuti Vasishth and Tarunika Jain Agrawal

This study attempts to identify fundamental determinants of bond ratings for non-financial and financial firms. Further the study aims to develop a parsimonious bond rating model…

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Abstract

Purpose

This study attempts to identify fundamental determinants of bond ratings for non-financial and financial firms. Further the study aims to develop a parsimonious bond rating model and compare its efficacy across statistical and range of machine learning methods in the Indian context. The study is motivated by the insufficiency of prior work in the Indian context.

Design/methodology/approach

The authors identify the critical determinants of non-financial and financial firms using multinomial logistic regression. Various machine learning and statistical methods are employed to identify the optimal bond rating prediction model. The data cover 8,346 bond issues from 2009 to 2019.

Findings

The authors find that industry concentration, sales, operating leverage, operating efficiency, profitability, solvency, strategic ownership, age, firm size and firm value play an important role in rating non-financial firms. Operating efficiency, profitability, strategic ownership and size are also relevant for financial firms besides additional determinants related to the capital adequacy, asset quality, management efficiency, earnings quality and liquidity (CAMEL) approach. The authors find that random forest outperforms logit and other machine learning methods with an accuracy rate of 92 and 91% for non-financial and financial firms.

Practical implications

The study identifies important determinants of bond ratings for both non-financial and financial firms. The study interalia finds that the random forest technique is the most appropriate method for bond ratings predictions in India.

Social implications

Better bond ratings may mitigate corporate defaults.

Originality/value

Unlike prior literature, the study identifies determinants of bond ratings for both non-financial and financial firms. The study also experiments with modern machine learning techniques besides the traditional statistical approach for model building in case of relatively under researched market.

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Article
Publication date: 2 November 2015

Sanjay Sehgal and Vibhuti Vasishth

– The purpose of this paper is to evaluate the profitability of investment strategies based on past price changes and trading volumes.

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Abstract

Purpose

The purpose of this paper is to evaluate the profitability of investment strategies based on past price changes and trading volumes.

Design/methodology/approach

Data are employed from January 1998 to December 2011 for select emerging markets. Portfolios are formed on the basis of past information on prices and/or volumes. Unrestricted and risk adjusted returns for sample portfolios are analyzed. The risk models employed in study are Capital Asset Pricing Model (CAPM), Fama-French (F-F) Model and Fama-French augmented models.

Findings

Price momentum patterns are observed for Brazil, India, South Africa and South Korea, while there are reversals in Indonesia and China. Low-volume stocks outperform high-volume stocks for all sample countries except China. Further, volume and price based bivariate strategies do a better job than univariate strategies in case of India, South Africa and South Korea. The past price and volume patterns in stock returns are not fully explained by CAPM as well as the F-F Model. Price and volume momentum factors do play a role in explaining some of these return patterns. Finally, the unexplained returns seem to be an outcome of investor under or overreaction to past information. The sources of price and volume momentum seem to be partly risk based and partly behavioral.

Originality/value

The study analyzes combined role of price and volume in portfolio formation with post holding analysis. The work is useful for global portfolio managers, policy makers, market regulators and the academic community. The study contributes to asset pricing and behavioral finance literature for emerging markets.

Details

Journal of Advances in Management Research, vol. 12 no. 3
Type: Research Article
ISSN: 0972-7981

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