Readings: IPO speculation, Volatility index in India, A Better Index Fund
- Business Standard: Investors lap up IPO finance
Spectacular returns by the recent initial public offerings (IPOs) on listing day are prompting a growing number of retail investors and even high net worth investors (HNIs) to borrow funds at a costly 16 to 17% (for two or three weeks) to bid for IPO shares.
The more the issue is oversubscribed the higher the interest cost per share. “Investors can make sufficient profits even if they are allotted 1/10th of the total amount invested and the scrip gets listed at a premium”.
Making hay while the sun shines.
- Economic Times: Volatility index to help price options, decide market’s course
M Venkateshwarlu has developed the implied volatility index for the Indian market based on the method similar to CBOE’s (Chicago Board Options Exchange) new implied volatility index, popularly known as VIX.
Volatility index calculation requires two pairs of options that are used from each series. Each pair consists of one call and one put with the same strike. In total, eight options must be used. The implementation of the method assumes a very liquid market. These constraints may not be met in emerging options markets that are less liquid than CBOE.
. . . this may introduce severe biases in the construction of the implied volatility index since it is well documented that the implied volatilities of calls and puts may differ significantly. In construction of implied volatility index for the Indian market also, we have observed some of the limitations similar to the one mentioned above.
Option liquidity in India is horrible. Forget about mid & far-month options, even the current month options for most stocks are rarely traded.
- The Motley Fool: Building a Better Index Fund
The MSCI index is weighted by the traditional market capitalization method, favoring widely held and highly valued companies like BHP Billiton (NYSE: BHP), with a $220 billion market capitalization. Because it doesn’t include the business fundamentals of its selected companies, one criticism of this method is that it biases the index toward overvalued companies and away from undervalued ones, thus raising the risk of capital loss in a downturn.
In contrast, the innovative methodology of WisdomTree’s index is that it includes only companies that are paying regular cash dividends. Relatively mature, slow-growing companies tend to be the ones that pay regular dividends.
Yet another investment avenue that’s not received enough attention in India. For eg, how many people take advantage of low-load index funds or ETFs like the Nifty BeES?
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