P. Nimal - Academia.edu (original) (raw)

Papers by P. Nimal

International Political Economy: Investment & Finance eJournal, 2016

This paper examines the validity of the behavioral explanations of the momentum effect. Although,... more This paper examines the validity of the behavioral explanations of the momentum effect. Although, the momentum effect seems to be captured by the risk based asset pricing models, there are behavioral explanations given for the existence of the momentum effect. Barberis, Shleifer and Vishny (BSV) (1998) and Daniel, Hirshleifer and Subrahmanyam (DHS) (1998) are the two most logical behavioral explanations for the existence of the momentum effect. However, it is difficult to reach any conclusion regarding the validity of theses behavioral explanations without testing them in real markets. This study introduces an event based method to test empirical validity of the behavioral explanations of the momentum effect. By applying the event based method in the Colombo Stock Exchange over the period from 2005 to 2013, it is found that investors’ conservative behavior suggested by BSV (1998) seems to be contributed to the momentum effect in the Colombo Stock Exchange. However, overreaction hypo...

International Journal of Business and Social Research, 2015

This study investigates the stock market reaction for right issues and debenture issues of Colomb... more This study investigates the stock market reaction for right issues and debenture issues of Colombo Stock Exchange (CSE) during the period of 2005 to 2011 while providing evidence for the research question "how do stock prices react to the debt and equity issue announcements of listed companies in CSE?" In investigating the ex-ante and ex-post market reactions the study employees event study methodology, while predicting abnormal returns, based on three alternative normal/expected returns modeling methods, namely Mean Adjusted Model, Market Adjusted Model, and Capital Asset Pricing Model. When testing the alternative hypothesis, whether stock prices significantly reacts to the announcement of right & debenture issues, results of all models show positive market reaction during the 30 days prior to the announcement and react negatively from 2 days after the announcements for right issues, but for debenture issues market reacted negatively during the period prior to debenture ...

ERN: Asset Pricing Models (Topic), 2016

This study intends to identify the better model in explaining variations of average stock returns... more This study intends to identify the better model in explaining variations of average stock returns of listed companies in the Colombo Stock Exchange (CSE) when time series and cross sectional regressions are employed. The sample consists of all stocks listed in the main board of the CSE except Bank, Finance and Insurance Sector during the period from 1997 to 2014. The methodology used to form factor mimicking portfolios to estimate risk factors and portfolio returns is similar to the methodology of Fama and French 1993 and 2012 and to test the performance of asset pricing models Fama and MacBeth (1973) two step procedure is employed. The Gibbons, Ross, and Shanken (GRS) (1989) F-test reveals that the Capital Asset Pricing Model (CAPM) is a poor model whereas the Fama and French (1993) Three Factor Model (FF3FM) and Carhart (1997) Four Factor Model (C4FM) are better models in explaining the cross sectional variations of stock returns of the listed companies in the CSE when time series...

SSRN Electronic Journal, 2009

... 1 THE POWER OF TWO-PASS OLS TEST OF THE CAPM: A SIMULATION ANALYSIS OF THE CSE Sandun Fernand... more ... 1 THE POWER OF TWO-PASS OLS TEST OF THE CAPM: A SIMULATION ANALYSIS OF THE CSE Sandun Fernando University of Moratuwa sandun@becon.mrt.ac.lk and PD Nimal University of Sri Jayewardenepura pdnimal@yahoo.com ABSTRACT ...

SSRN Electronic Journal, 2016

International Journal of Management and Sustainability, 2013

Increasing competition in the finance sector in Sri Lank has created a huge competition among the... more Increasing competition in the finance sector in Sri Lank has created a huge competition among the banking sector. The high level of competition improved the bank efficiency and efficiency creates risk to the banks. Therefore, risk management is a vital in achieving efficiency. Therefore, this study addresses the question on “whether the Sri Lankan banks are efficient and how risk management improves the banks’ efficiency?. The main objective of the study was to identify the efficiency of the banks by incorporating risk factors. This study adopted second Stage Data Envelopment Analysis based on Licensed Domestic Commercial Banks in Sri Lanka for the period from 2005 to 2011. At the first stage it use DEA to finds the efficiency scores by incorporating risk factors such as Credit, Market and Operational risk. In the second stage it applies Tobit regression to find the influence of external environment factors on bank efficiency. The mean efficiency of Sri Lankan banks is high when it ...

The information asymmetry between insiders and outsiders suggests that insiders may trade in larg... more The information asymmetry between insiders and outsiders suggests that insiders may trade in large volumes when they have access to unpublished information that cannot be accessed by outsiders. Insiders may purchase (sell) securities in large volumes when they are aware of good (bad) news. Hence, the market could perceive that higher the trading volumes of insiders, higher would be the level of information content that underlies it underlies. Accordingly, this study examines whether high trading volumes of directors’ are more informative than low trading volumes of directors’ and whether the market adjusts the security prices for this information immediately. This study analyzes a sample of high volume and low volume directors’ purchases and sales reported to the Colombo Stock Exchange (CSE) during September, 2004 to August, 2012 using the standard event study methodology. The findings of the trading volume sample are consistent with the hypothesis that high volume directors’ purcha...

The Capital Asset Pricing Model (CAPM) of Sharpe (1964), Lintner (1965), and Black (1972) (SLB) s... more The Capital Asset Pricing Model (CAPM) of Sharpe (1964), Lintner (1965), and Black (1972) (SLB) states that, in equilibrium, the expected return on a security is a positive linear function of its beta, and beta suffice to describe the cross-section of expected returns. The empirical studies on the validity of the positive beta-return relationship of the SLB model have been extensively carried out for the past four decades using average realized stock returns and an index of security returns to proxy for expected returns of stocks and market portfolio respectively. Early studies have supported the positive linear relationship between beta and return (e.g., Lintner (1965)). However, studies conducted after Fama and MacBeth (1973) (FM) have found inconsistent evidence on this relationship. For example, Fama and French (1992) conclude that the relationship between beta and average return is flat. In the Tokyo Stock Exchange (TSE), Nimal and Horimoto (2005) report that the beta and avera...

This study utilizes Data Envelopment Analysis (DEA) as a non-parametric approach for measuring ef... more This study utilizes Data Envelopment Analysis (DEA) as a non-parametric approach for measuring efficiency to analyze the technical efficiency of the Sri Lankan banking industry from year 2007 to 2011. This study conducted efficiency analysis across the individual, industry, ownership and size factors. The reason behind the selection of the banking industry in Sri Lanka is mainly due to the reasons of competition among the banking sector and the key role they play in the country to protect the stability of the financial system. Hence the efficiency of the banking industry is of paramount importance for the efficiency of the whole economy. Therefore, the objective of the study is to find the efficiency of the banking industry by using DEA as a new approach for measuring efficiency. Results indicate that banks are operating at a higher level of efficiency recording an overall technical efficiency of 83.3 percent. The results also indicate that most of the large banks operate at increas...

Bulletin of Indonesian Economic Studies

Afro-Asian J. of Finance and Accounting

There have been numerous studies that have attempted to explain the cross-sectional variation in ... more There have been numerous studies that have attempted to explain the cross-sectional variation in average returns in developed and emerging markets. However, there is a dearth in the published evidence of research that has looked at frontier markets regarding this aspect. Sri Lanka is considered to be a frontier market and hence the objective of this study is to test the ability of the Carhart four-factor model to explain the variation in the cross-section of average stock returns in the Colombo Stock Exchange (CSE) and to evaluate it in comparison to the capital asset pricing model (CAPM) and the Fama and French three-factor model. The study finds that the four-factor model, incorporating the market factor, size factor, value factor and momentum factor, provides a satisfactory explanation of the variation in the cross-section of average stock returns in the CSE. Further, it is found that the four-factor model performs better than the CAPM and the three-factor model.

Kelaniya Journal of Management, 2014

The study focuses on widely used CAPM test, the two-pass test. It is argued and shown by a simula... more The study focuses on widely used CAPM test, the two-pass test. It is argued and shown by a simulation that power of the test does not continuously decrease when the standard deviation of market premium increases as existing literature reports. Rather it is peaked at the middle indicating the standard deviation of market premium has negative as well as positive effects on the power. The implication of this finding is that rejecting the CAPM is highly possible in lesser volatile market as in a highly volatile market even when the CAPM exists in those markets.

Asian Journal of Finance & Accounting

Neoclassical asset pricing models try to explain cross sectional variation in stock returns. This... more Neoclassical asset pricing models try to explain cross sectional variation in stock returns. This study critically reviews the findings of empirical investigations on neoclassical asset pricing models in the Colombo Stock Exchange (CSE), Sri Lanka. The study uses the structural empirical review (SER) methodology to capture a holistic view of empirical investigations carried out in the CSE from the year 1997 to 2017.The pioneering Capital Asset Pricing Model (CAPM) (Sharpe, 1964; Lintner, 1965: Black, 1972) (SLB) states that market betas of stocks are sufficient to explain the cross sectional variation of stock returns. Alternatively there are multifactor models (Ross, 1976; Chen, 1986; Fama and French, 1993, 2015; Cahart, 1997) that state stock returns are driven by multiple risk factors. Similar to other markets the findings on the SLB model are not consistent in the CSE. The Fama and French (1993) and the Cahart (1997) models are supported in the CSE which is consistent with other...

Colombo Stock Exchange (CSE) in Sri Lanka is at its first level of emerging markets. Volatility o... more Colombo Stock Exchange (CSE) in Sri Lanka is at its first level of emerging markets. Volatility of emerging markets are considered to be high and characterized by complex features. Therefore, this study focusses on examining the volatility behavior of Colombo Stock Exchange with advanced econometric models. Here GARCH, EGARCH and TGARCH models are used to capture the complex volatility features. It is observed that volatility clustering and leverage effect exists in Colombo Stock Exchange. Further, negative shocks creates more volatility compared to a positive shocks generated in the market. TGARCH model assuming student-t probability distribution function is more suitable to explain the volatility in Colombo Stock Exchange among the models described above according to the Akaike and Schwarz information criteria.

International Journal of Economics and Financial Issues

Neoclassical asset pricing is built on the premise investors are rational and there are unlimited... more Neoclassical asset pricing is built on the premise investors are rational and there are unlimited arbitrage opportunities. Behavioural implications of irrational investors led to the development of the counter paradigm, behavioural asset pricing. This study systematically reviews the origin and evolution of behavioural asset pricing distinct to neoclassical asset pricing. It addresses the two pillars of behavioural asset pricing where; investors are not always rational and there are limits to arbitrage. The study captures investor irrationality in two perspectives; investors' beliefs and their preferences. It reviews psychological biases and heuristics adopted from experimental psychology to behavioural asset pricing in explaining beliefs and preferences of irrational investors. Furthermore, it lists key biases and heuristics recognised in behavioural asset pricing literature. It discusses theoretical behavioural asset pricing models that try to explain variation of stock returns through specific biases of investor psychology. Lastly, the study reviews aggregate investor sentiment studies that try to capture mass psychology of investors in financial markets. The significance of this study is that it attempts to develop a holistic view of the foundation and evolution of behavioural asset pricing.

The information asymmetry between insiders and outsiders is a fundamental concern for the market.... more The information asymmetry between insiders and outsiders is a fundamental concern for the market. The market could perceive that insiders trade in order to obtain an advantage from inside information to which they have access even though it may not be necessarily true for all the trades of insiders. If insider trades are considered as informative by the market, insider purchases (sales) could be perceived as positive (negative) signals. Hence, the objective of this study was to examine whether insider purchases (sales) are perceived as informativeby the Colombo Stock Exchange (CSE) and then to examine how quickly the market reacts to this information. Due to the fact that the Sri Lankan law requires the disclosure of directors' insider trades only, this study investigated purchases and sales reported to the CSE from September, 2004 to August, 2012 using a total sample of 2201 insider purchase events and 941 insider sales events of directors. The standard event study methodology ...