Literature Review The first study (Khanna & Palepu, 1999) established that there is a positive linear relationship

p between insider ownership and performance of the firm by using single year (199 ) data and both accounting (!"#) and mar$et (Tobin%s &) based performance measures to study this relationship'1 #ccording to (ensen and )ec$ling (19*+) cash flow ownership by an entrepreneur reduces incentives for e,propriation and raises incentives to pay out dividends' They also (-a Porta et al' (1999b)) show that this need for higher cash flow ownership shows a commitment to limit e,propriation and is higher in countries with inferior shareholder protection'. The nature of relation between the ownership structure and /rm%s economic performance, have been the core issue in the corporate governance literature' 0rom a /rms% point of view, /rms1portability, en2oyed by agents, is affected by ownership structure of the /rm' 3n particular, "wnership structure is an incentive device for reducing the agency costs associated with the 4eparation of ownership and management, which can be used to protect property rights of the /rm (5arbosa and -ouri (.66.))' The dispersion of ownership led to the evolution of the control and the rise of )anagement as power in the management' The trend showed that a vast )a2ority of shareholders purchased stoc$ only for the purpose of investment and 7ere no longer interested in the management of the corporation' The modern 4hareholder is in fact a shareholder very often institutional and impersonal and 8ompletely without any loyalty to the company and without any ambition to ta$e Part in the management' 9nder the modern corporate system, control over the 8orporation was being e,ercised with minimum ownership interest':

3n the 3ndian conte,t, early study by Thenmo;hi (.66.) reported decline in volatility due to increased flow of information while 4henbagaraman (.66 ) did not find significant impact on mar$et volatility in 3ndia' !a2u and Karnade (.66 ) also studied the behaviour of volatility of the 4&P 8<= <ifty inde, after the introduction of derivatives trading' #ll the above studies relating to 4&P <ifty reported a decline in the volatility' 5andivade$ar and >hosh (.66 ) studied volatility behaviour of both <4? <ifty and 54? 4ense, after the introduction of futures trading and documented @ futures effects% in the volatility behavior of <4? <ifty'A

7e study the relation between institutional ownership and volatility across dividend paying and nonBdividend paying firms' 7e find that institutional ownership and volatility are positively correlated for dividend paying firms, while they are negatively correlated for nonBdividend paying stoc$s'+

This study e,amines empirically the effects of ownership structure on the firm performance 0or a panel of 3ndian corporate firms, from an Cagency perspectiveD' 7e e,amine the effect of interactions between corporate, foreign, institutional, and managerial ownership on firm Performance' 9sing panel data framewor$, we show that a large fraction of crossB sectional Eariation, in firm performance, found in several studies, can be e,plained by unobserved 0irm heterogeneity' 7e also provide some evidence that the shareholding by institutional investors and managers affect firm performance, after controlling for observed firm characteristics and unobserved firm heterogeneity and the effect is nonBlinear'*

abstract The study of volatility spillovers provides useful insights into how information is transmitted from stoc$ mar$et to foreign e,change mar$et and vice versa' This paper e,plores volatility spillovers between the 3ndian stoc$ and foreign e,change mar$ets' The results indicate that there e,ists a bidirectional volatility spillover between the 3ndian stoc$ mar$et and the foreign e,change mar$et with the e,ception of 4&P 8<= <30TF and 4&P 8<= A66' The findings of the study also suggest that both the mar$ets move in tandem with each other and there is a long run relationship between these two mar$ets' The results of significant bidirectional volatility spillover suggest that there is an information flow (transmission) between these two mar$ets and both these mar$ets are integrated with each other' #ccordingly, financial managers can obtain more insights in the management of their international portfolio affected by these two variables' This should be particularly important to domestic as well as international investors for hedging and diversifying their portfolio'

LITERATURE REVIEW The behavior of volatility of stoc$ mar$et has been e,tensively studied using the #!8GB>#!8G framewor$ pioneered by ?ngel (19H.) and further developed by 5ollerslev (19H+), <elson (1991) and others' The literature on volatility spillover can be broadly categori;ed into two groups' The first group of studies focuses on return series or errors from modeling return series and the relationship of returns across mar$ets' 0or instance, ?un and 4him (19H9) show that about .+ percent of the error variance of stoc$ mar$et returns can be e,plained by innovations in other stoc$ mar$ets, and, not surprisingly, report that the 94 mar$et is the most influential stoc$ mar$et' The second group of research directly e,amines volatility' 3n an investigation of the crash of "ctober 19H*, King and 7adhwani (1996) study shows transmission of price

information across mar$ets through volatility innovations even when the information is mar$et specific' They argue that there is a %contagion1 effect across mar$ets whereby mar$ets overreact to the events of another mar$et irrespective of the economic value of the information' 8hiang, Fang, and 7ang (.666) study points out that national stoc$ returns in #sian countries are positively related to the value of the national currency' 4imilarly, 4abri (.66:) evaluates features of emerging stoc$ mar$ets, in order to point out the most associated indicators of increasing stoc$ return volatility and instability of emerging mar$ets' The study shows that stoc$ trading volume and currency e,change rate respectively represent the highest positive correlation to the emerging stoc$ price changes' !esearch on volatility spillovers is not limited to stoc$ mar$et only' 4imilar tests have been conducted in other mar$ets such as foreign e,change, cash and future mar$ets' 5railsford (199+) e,amines the issue of volatility spillovers between the #ustralian and <ew Iealand e&uity mar$ets' The results indicate that volatility in the #ustralian mar$et influences the subse&uent conditional volatility of the <ew Iealand mar$et' 4imilarly, conditional volatility in the #ustralian mar$et appears to be influenced by volatility in the <ew Iealand mar$et' 5aele (.66A) e,amines the magnitude and time varying nature of volatility spillovers from the aggregate ?uropean (?9) and 9'4' mar$et to 1 local ?uropean e&uity mar$ets' Kanas (.666) investigates the interdependence of stoc$ returns and e,change rate changes within the same economy by considering the si, industriali;ed countriesBB94, 9K, (apan, >ermany, 0rance and 8anada' The study concludesJ (i) there is cointegration between stoc$ prices and e,change ratesK (ii) there is evidence of spillover from stoc$ returns to e,change rate changes for all countries e,cept >ermanyK (iii) the spillovers from stoc$ returns to e,change rate

changes are symmetric in natureK (iv) volatility spillovers from e,change rate changes to stoc$ returns are insignificant for all the countriesK (v) the correlation coefficient between the ?>#!8G filtered stoc$ returns and e,change rate changes is negative and significant for all the countries, which indicates a significant contemporaneous relationship between stoc$ returns and e,change rate changes' 5odart and !eding (.661) show that e,change rates have a significant effect on e,pected industry stoc$ returns and on their volatility, though the magnitude of this effect is &uite small' The study also concludes that the importance of the e,change rate spillovers is influenced by the e,change rate regime, the magnitude, and the direction of e,change rate shoc$s' 0ang and )iller (.66.) investigate empirically the effects of daily currency depreciation on Korean stoc$ mar$et returns during the Korean financial turmoil of 199* to .666' The study findsJ (i) there e,ists a biBdirectional causality between the Korean foreign e,change mar$et and the Korean stoc$ mar$etK (ii) the level of e,change rate depreciation negatively affects stoc$ mar$et returnsK e,change rate depreciation volatility positively affects stoc$ mar$et returnsK and stoc$ mar$et return volatility responds to e,change rate depreciation volatility' 3n the light of the above discussion on volatility spillover, this study e,amines the information flow between the 3ndian stoc$ and foreign e,change mar$ets' # good understanding of the determinants, which shape the first and second moments of the conditional distribution of stoc$ return as well as e,change rate return, is crucial for efficient portfolio management strategies' #mong those determinants, e,change rates have received particular attention due to the importance of currency management strategies in highly integrated financial mar$ets and the implication of e,change rate fluctuations for company profitability L5odart and et al (.661)M'

4tudies of stoc$ mar$et volatility often point at similar Nstylised factsO' These include dayBofBtheBwee$ effects, volatility following a 9Bshape throughout the trading day and asymmetric volatility, in that high volatility is more li$ely to follow negative returns rather than positive ones' !esearchers have also focused on monthly effects in stoc$ mar$et data' The main focus of this paper is monthBrelated volatility' #s outlined by Tang (199H), whilst empirical studies on monthly seasonality of returns are numerous, investigations of the monthly seasonality of higher moments of returns (such as volatility) are not as common' 3n this way, most of the studies cited in this section relate to returns rather than volatility per se Pespite this, given that returns and volatility are directly related (since both are caused by price changes), e,isting studies of returns are highly relevant to volatility investigations'

"ne seasonality issue attracting much attention is the (anuary effect, whereby higher returns can be earned during the month of (anuary Q suggesting a higher amount of volatility during this month' ?mpirical evidence on the (anuary effect includes research by "fficer (19*A) and !o;eff and Kinney (19*+) who found that (anuary returns on #ustralian and 94 stoc$s tend to be higher than those realised during other months' )ore recent evidence includes the study of -ucey and 7helan (.66:) who analysed 3rish stoc$ mar$et data for the period 19 :B.666 and noted the presence of a (anuary effect'

Pifferent authors suggested diverse e,planations for the (anuary effect' 0or instance 5ranch (19**) and Pyl (19**) suggested ta,Brelated reasons in particular investors sell stoc$s on which they can realise losses at the end of the fiscal year' This depresses stoc$ prices in Pecember, which then recuperate in (anuary'

The actions of fund managers have also been considered as an e,planation for the (anuary effect' 0or instance, Porter, Powell and 7eaver (199+) )onthB!elated 4easonality of 4toc$ Price Eolatility

analysed the share ownership of 94 fund management companies and found that portfolio rebalancing actions affect stoc$ prices around the turn of the year' 3n particular, institutional investors Nwindow dressO portfolios at fiscal year ends to divest from ris$y positions by selling ris$y stoc$s such as the ones of smaller companies' 0und managers then ta$e on these positions again in (anuary following the reporting date' #uthors such as 8hien, -ee and 7ang (.66.) suggested that higher (anuary volatility may be a remnant of the fact that the fiscal years of most companies end in Pecember, and earnings are announced in (anuary' This e,planation is corroborated by the findings of 8amilleri and >reen (.66A) who analysed volatility prevailing on the 3ndian stoc$ mar$ets' "ne notable feature is that a large number of 3ndian companies terminate their accounting years in )arch, and the authors found higher volatility during the months of )arch and #pril' <o evidence of a higher (anuary volatility was found, and this provides confidence that the fre&uently observed (anuary effect is mostly related to the end of financial year of companies, which usually occurs in Pecember' "ther researchers such as "gden (1996) argued that the (anuary effect may be e,plained by seasonal li&uidity and cash flow factors whilst 8hang and Pinegar (19H9) and Kramer (199:) attributed the effect to ris$ seasonality' #nother fre&uently observed monthly effect, is the turnBofBtheBmonth (T")) pattern as discussed for instance by -a$onisho$ and 4midt (19HH) who found that returns tend to be significantly higher on the last trading day of the month and the subse&uent three trading days' 8adsby and !adner (199.) e,amined stoc$ indices from ten countries for the period 19+.B19H9 and detected T") effects in si, mar$ets' 4imilarly, #grawal and Tandon (199:) e,amined stoc$ inde, data of eighteen countries between 19*1 and 19H*, and concluded that the T") effect was becoming less pronounced, since it was only present in seven countries during the 19H6s, as compared to eleven countries during the 19*6s'

Kun$el, 8ompton and 5eyer (.66 ) e,amined daily stoc$ mar$et data for 19 countries from 199H to .666, and found the presence of a T") effect in at least 1A of these mar$ets' 3n particular, the T") period accounts for around H*R of monthly return in those mar$ets where it is present' 5ooth, Kallun$i, and )arti$ainen (.661) analysed Gelsin$i 4toc$ ?,change data for the period 1991B199* and found higher stoc$ returns during the T")' The authors attributed this T") effect to higher trading activity and increased NbuyO orders during the particular days, and they specified that the increased trading activity is mainly attributable to larger traders'