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Valuation Errors of Cross-Listed Stocks in BSE and NSE

By:

Rastogi Nikhil

Material type: Article

ArticleLanguage: ENG Series: ; 13Publication details: Aug 2007 0Edition: 8Description: 52-59 PpSubject(s):

Valuation, Stock Market

DDC classification:

Online resources:

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Summary: Efficiency of a market could be measured in terms of the contribution of value variance and noise to the total return variance. This study adopts the model used by Damodaran (1993) to compute the value variance and noise for the stocks in the "A", "B1" and "B2" groups of the BSE and compares with similar cross-listed stocks at the NSE. The study is done using daily closing prices for the period from January 2002 to December 2004. The results show an increase in the contribution of noise to the total return variance as one moves from "A" group to "B1" to "B2" group for both the exchanges. Also the component of noise is more than value variance in the total return variances for stocks listed at the NSE when compared to similar stocks at the BSE.

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Efficiency of a market could be measured in terms of the contribution of value variance and noise to the total return variance. This study adopts the model used by Damodaran (1993) to compute the value variance and noise for the stocks in the "A", "B1" and "B2" groups of the BSE and compares with similar cross-listed stocks at the NSE. The study is done using daily closing prices for the period from January 2002 to December 2004. The results show an increase in the contribution of noise to the total return variance as one moves from "A" group to "B1" to "B2" group for both the exchanges. Also the component of noise is more than value variance in the total return variances for stocks listed at the NSE when compared to similar stocks at the BSE.

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