Cross-Autocorrelation Structure between Size-Based Portfolios: Evidence from the Indian Stock Markets

Understanding the relationship between portfolio returns on the basis of their capitalisation is an important area of research in the finance literature. It is important not only for the investors, but also for the academicians and practitioners. Investors can translate this information in stock selection and portfolio formation. On the other hand, academicians and practitioners are interested in knowing the information spillover effect and the efficiency of the market in assimilating the information into the stock prices. This study examines the cross-autocorrelation structure on the basis of market capitalisation of stocks in the Indian stock markets. Six indices, namely, Standard & Poor's Bombay Stock Exchange (S&P BSE)100, S&P BSE Midcap, S&P BSE Smallcap, CRISIL NSE Index (CNX) 100, CNX Midcap and CNX Smallcap, are used as proxies for different market capitalisation portfolios. The study period spans from January 2006 to October 2013. Unit root test, cointegration test, Granger causality test, variance decomposition measure and impulse response function are used for analysis.