Ex-Dividend Day Bid-Ask Spread Effects in A Limit

CHAPTER III
BID ASK SPREAD FOR SPOT MARKET
3.1 INTRODUCTION
The main objective of this chapter is to calculate the bid-ask spread for all the shares
trades on the NSE. The study on market microstructure uses high frequency and non
synchronous data. To tackle the effects of non-synchronous data, the autocorrelation structure
of stock market data is focused.The data exhibits higher serial correlation, most securities
have a very low trading volume and adjust slowly to information. Most of the securities of
the NSE are less liquid too. This enables investigation of issues of efficiency and non-
synchronous trading across stocks with different liquidity level, using high frequency data.
Among the different types of spread which includes Rolls spread, Effective spread,
Quoted spread, Realized spread and High Low spread, Rolls spread is one of the most
effective methods for calculating spread and it yields the best results.
This chapter covers the analytical framework followed to calculate the Bid-Ask
spread, sector wise average of Bid-Ask spread, Index wise bid ask spread and the relationship
between Bid Ask spread and market microstructure variables.
3.2 ANALYTICAL FRAMEWORK
During March 2010. 1394 shares were traded at the NSE. Out of this, 1290
companies trading data is considered for the study. Spread is calculated using for all 1290
companies traded on the NSE.Rolls estimator is used here to calculate spread. The formula is
S = 2 - COV (Pt, Pt-1)
where Pt is the transaction price at time t 1, Pt-1 is the trading price at time t-1 ( previous
time) and COV (Pt, Pt-1) is the covariance between two successive price changes. A one
way analysis of variance technique is used here to estimate the relationship between
different study variables.
These industries are further classified into sectors. A sector represents a group of
related industries. For example, the Agriculture sector consists of Fertilizer industry,
Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

Pesticide industry, Agriculture industry and Tractor manufacturing industry. Sixteen such
sectors are formed. These sectors are Agriculture, Automobile, Banking and Financial
Services, Capital Goods, Chemicals, Construction and Infrastructure, Food and Food
Processing, Information Technology (IT) and Information Technology enabled Services
(ITeS), Manufacturing, Mining Metals, Miscellaneous, Pharmaceuticals, Power and
Energy, Printing and Stationary, Services and Textiles and Allied Products Sectors. To which
sector has performed well in the Stock Exchange, a comparison is made among the different
industries belonging to these sectors. One Way Analysis is used to study the comparison.
To gain a better understanding, the NSE forms various types of indices. During March
2010, 23 indices, which fall under four categories, were formed by the NSE. The four
categories are Broad Market indices, Sectoral Indices, Thematic indices and Strategy indices.
An index is formed on certain conditions. The Broad Market Indices are formed with the
most liquid and best performing companies. TheSectoral indices are formed with the best
performing companies in a sector. For example, the automobile index consists of 15 best
performing companies related to automobiles. This includes spare parts, tyres, vehicles and
engine oil. A comparison of performance is made between the index forming companies and
non index forming companies. The non index forming companies consists of the other
companies which belong to the industry taken for index forming companies. For example,
the other companies in the spare parts industry, tyre industry engine oil industry for the non
index forming companies. Thematic indices are formed based on the themes which the
companies fall under. Five thematic indices are included which includes Commodity,
Consumption, Infrastructure, PSEs and Service sector indices. A comparison is made
between the index forming and non index forming companies.The non index forming
companies are those which belong to the industry of the index forming company but do not
form the index. One way analysis test is used for comparison.
The third part of this chapter deals with finding the relationship between spread and
the other variables. A few variables affect the bid-ask spread directly whereas a few of the
variable has an indirect influence on spread. The relationship between spread and Market
Price per Share, Capitalization, Number of shares traded, beta of the security, percentage of
promoters holdings and debt equity ratio. Regression is used to find the influence of these
variables on spread.
The formula for one way analysis of variance given as

Mean Square between samples=
( )
where (k-1) represents degrees of freedom (d.f.) between samples.

Mean Square within=
( )
where (n-k) represents degrees of freedom within samples

F-ratio =

The F ratio is found. If the F ratio is greater than 0.05, the result shows significance
and the null hypothesis is rejected otherwise, the results show no significance and the null
hypothesis is accepted.
Regression is also used here. The formula to find the regression between two
variables are gives as:
Regression Equation(y) = a + bx
Slope (b) = (NXY - (X)(Y)) / (NX2 - (X)2)
Intercept(a) = (Y - b(X)) / N
3.3 SECTOR WISE BID-ASK SPREAD
The industries which are related to each other in some way or which are similar to
each other are grouped and form a sector. Such grouping resulted in formation of sixteen
sectors. The performances of these sectors are given in this section.
3.3.1 Industries for Agriculture Sector
Argiculture being one of the most important sectors accounts for 58percent of the
Indian population. The agriculture sector has been facing a lot of issues including water
scarcity, deficient rainfall and monsoon, issues relating to selling of agriculture products,
subsidies of the government and so on.At the same time, the government is taking steps to

develop the agriculture sector. A lot of policies and programs are introduced by the
government to boost this sector.Though these issues dominate much on agriculture, it is must
to feed the entire population through this sector. Therefore modernized industries are
developed to improve its yielding a lot. On the other side trading the shares of this industry
much depends on its performance as well as the performance of the agriculture sector. In case
of any failure on either of the above, the reflection could be seen on trading. In order to
assess the spread during March 2010, the data for 20 days are collected and the same is
presented in Table 3.1
TABLE 3.1
Spread for Agriculture based Industries
S. No Agriculture based Industries Number of respondent units Mean Spread

1 Agriculture 7 1.422
2 Fertilizers 13 1.27
3 Pesticides 10 2.45
4 Automobiles - Tractors 4 1.305
Total 34 1.61
Source: National Stock Exchange of India.
It is found from Table 3.1 that the overall mean spread of the agriculture sector for 34
units is 1.61. It is also noted that the Pesticide industry has the highest mean spread of 2.45
whereas the fertilizer industry has the lowest mean spread of 1.27.It is very peculiar to
disclose that the number of units in Pesticides industry is 10 whereas in fertilizer industry, it
is 13.
In order to find out the inter-relationship of mean spread among these industries, a
one way analysis is applied on the spread values of agriculture companies. In this regard, the
null hypothesis is developed as such:
H0: There is no significant difference of the mean spread among different industries
belonging to agriculture sector.
The results of the one way analysis is presented in Table 3.2.
TABLE 3.2
ANOVA test for theSpread of industries in Agriculturesector

Sum of
Particulars Df Mean Square F Sig. Results
Squares
Between Groups 5.640 3 1.880 .789 .510 N.S
Within Groups 71.523 30 2.384
Total 77.163 33
N.S Not Significant
From Table 3.2, it is inferred thatsince the F value is 0.789 and p value is 0.510 which
are statistically insignificant at 5 % level. The null hypothesis is accepted.Therefore it is
concluded that there is no significant difference among the four segments of Agriculture
sector. These four categories have the same type of spread values during the particular time.
3.3.2. Industries for AutomobileSector
The Automobile sector has seen a drastic growth during the past decade.It has been
witnessing an increase in output and consumption. There was a shift in the customers
preference about the type of vehicle. Instead of buying products for necessity, customers
wanted products for comfort and convenience. This shift is due to the earning capacity and
higher level of disposable income in the hands of common man. Buying a four wheeler was
a sign of a healthy financial position of the individual. So the demand for four wheelers,
especially Cars, is always on the increase.
There are six industries coming under the Automobile sector. This includes Cars, two
wheelers, three wheelers, LCV and HCVs. Allied industries like Spare parts are also
included in this sector. Table 3.3 gives the list of companies in each industry and their
spread.
TABLE 3.3
Spread for Automobilebased industries
S.No Automobile based Industry Number of respondent units Mean Spread

1 LCV & HCV 7 1.175
2 Cars 2 0.51
3 Scooters and three wheelers 5 1.99
4 Motor cycles and mopeds 2 3.8
5 Auto Ancillaries 54 2.092
6 Tyers 6 1.89
Total 76 1.90
Source: National Stock Exchange of India
Table 3.3 reveals that there are 76 units in this sector having overall mean spread of
1.90. It is also found that Auto ancillaries industry has more number of units and second
highest mean spread whereas cars industry has two units and the lowest spread of 0.51. Motor
cycles industry has the highest spread of 3.8.LCVs &HCVs are better performers compared
to Scooters and three wheelers, motor cycles, auto ancillaries and tyres.
The internal segmentation is done for the automobile sector. The industries included
in this sector are LCVs and HCVs, Cars, Scooters and three wheelers, Motor cycles and
mopeds, Auto Ancillaries and Tyre. The average spread values among these categories are
compared.In rder to test the relationship among these industries, one-way analysis is applied
on the spread value of the automobile sector with respect to the six internal segments. In this
regard, the null hypothesis is developed as such:
H 0 : There is no significant difference of the mean spread among the different

industries belonging to the Automobile sector. The results are shownin Table 3.4.
TABLE 3.4
ANOVA test forSpread of industries in Automobileindustries
Particulars Sum of Squares df Mean Square F Sig. Results

Between Groups 101.601 5 20.320 1.347 .255 N.S
Within Groups 1056.192 70 15.088
Total 1157.793 75
N.S Not Significant
Table 3.4 infers that since F value is 1.347 and the p value 0.255 and are statistically
insignificant at 5 % level, the null hypothesis is accpeted. There is no significant difference
among the six segments of the automobile sector.
3.3.3 Industries forBanking and Financial Services Sector

Indias banking sector is dominated by public sector banks which constitutes of 65
percent of the gross credit suppliers. The SBI is the only bank to feature in the list of top 100
banks while the rest of them are too small compared to the global average. The public sector
banks had to dent on their profitability due to labor cost. Private sector banks maintained their
profitability. To meet the guidelines given by the banking regulator, the banks are busy in
meeting their capital requirements, as per Basel Norm II. This sector has an exposure
towards state electricity boards,aviation, textiles and steel. Deteriorating asset quality,
reduced loan growth and high operating expenses have led to moderation in operating profits
of PSBs. Although the Indian banking sector has witnessed some slowdown during the past
years, this sector is better than many of the countries on benchmarks like growth,
profitability, capital adequacy and asset quality. This sector is well poised for growth due to
significant demand, demographic dividends, high savings, growing disposable income, and
improving physical and technology infrastructure.
Non Banking Finance Companies cater to a wide segment of customers. Institutions

catering to special needs of customers are developed and these sectors are not without their
challenges. While these challenges do not hinder the performance of the institutions, it is
necessary to know how these companies performed in the stock exchanges. The market price
and the bid ask spread are the reflection of the perception of investors about the performance
of the company. Spread is calculated to find how the investors perceive the performance.
Public sector banks, private sector banks, Housing Finance companies, Term Lending
institutions and other Financial Institutions are included in this sector. Foreign banks which
are listed on the National Stock Exchange are also included in this list. The total number of
companies in this sector is 113.
TABLE 3.5
Spread for Banking and Financial Services based industries
S.No BFSI based Industries No of Respondent Units Mean Spread

1 Banks PSU 20 1.03
2 Banks Private Sector 19 1.811
3 Finance Companies 63 1.14
4 Finance Housing 6 1.22
5 Term Lending Institutions 5 1.901

Total 113 1.42
Table 3.5 discloses the spread for Banking and Financial Services based industries. It
is found that this sector has a mean spread of 1.42. It is also noted that the average spread
ranges from 1.03(forPSU banks) to 1.901 (for Term Lending institutions). Here the range of
spread is lowest. The public sector banks have outperformed the privatesector banks and this
is shown by a lesser spread value. Housing finance companies have performed on par with
the finance companies, showing an average value of 1.22.
The researcher intends to compare the average spread values among the industries
belonging to the BFSI sector. Therefore one-way analysis is applied on the spread values of
BFSI sector with respect to the five internal segmentsand is shownin Table 3.6.The null
hypothesis is developed as such:
H0: There is no significant difference of the mean spread among different industries
of the Banking and Financial Services and Institutions sector.
TABLE 3. 6
ANOVA testfor spread of industries in BFSIsector
Particulars Sum of Squares df Mean Square F Sig. Result

Within Groups 4543.267 108 42.067
Total 4691.885 112
N.S Not Significant
From Table 3.6, it is found that the F value is 0.883 and p value is 0.477. Thesevalues
are statistically insignificant at a 5% level, which imples the null hypothesis is accepted. It is
concluded that there is no significant difference among the five sectors belonging to the BFSI
sector. These five spreads are uniqueof thesame nature of performance of each other,
3.3.4 Industries for Capital Goods Sector
Capital goods are one of the crucial sectors, as the performance of the economy is
measured in the growth of the capital goods sector. Being one of the major revenue
generators is on one side of the performance. On the other side, the share prices also indicate

how the investors perceive the company. This is reflected in the way the share prices move.
Spread is a measure of the performance of the companys share prices. The data collected for
twenty trading days during March 2010 are analyzed and presented in Table 3.7. This sector
consists of the maximum number of industries compared to other sectors. Thirteen industries
are included in this list and companies of more than 1/10th of the total number of companies
taken for analysis.
TABLE 3.7
Spread for Capital Goods based industries
S. No Capital Goods based Industry Number of Mean Spread

Respondent
Units
1 Abrasives and Grinding Wheels 2 1.5
2 Air Conditioners 3 1.46
3 Bearings 5 3.5
4 Casting and Forging 13 1.39
5 Compressors/Drilling Equipments 3 2.1
6 Electric Equipments 33 1.66
7 Electrodes Graphite 3 2.3
8 Electrodes Welding 2 1.99
9 Engineering 43 1.33
10 Engineering Turnkey Services 12 1.83
11 Engines 4 1.26
12 Fasteners 4 1.88
13 Transmission Line Tower/Equipments 3 2.1
Total 130 1.86

From Table 3.7, it is understood that the range of spread is from 1.26 (for Engines) to
3.5 (for Bearings industry). Itis surprising to note that the mean spread is 1.8.It is found that
the Engines industry has outperformed all other industries in this sector. The volatility of
Bearings industry is the highest. This is reflected in a high spread of 3.5. This is the only
company that has a spread above 3. Graphite Electrodes industry has the second highest
spread of 2.3. For all other companies, the spread is below 3.
An internal segment relation is made for the industries belonging to the capital goods
sector. The mean spread among these categories is compared by using one-way analysis. The
results of these are given in Table 3.8. The null hypothesis for analysis is presented as:

H0: There is no significant differences of the mean spread among the different
companies belonging the capital goods sector.
TABLE 3.8
ANOVA testfor the Spread of industries in Capital Goods sector
Mean
Particulars Sum of Squares df F Sig. Result
Square
Within Groups 1836.073 117 15.693
Total 1967.316 129
It is inferred from Table 3.8 that since the F value of 0.697 and p value of 0.752 are
statistically insignificant at 5% level, the null hypothesis is accepted. Therefore it is
concluded that there is no significant difference among the thirteen segments of the Capital
goods sector. These industries have the same type of spread values during the particular time.
3.3.5 Industries for Chemicals Sector.
Chemicals industry is one of the oldest industries in India. Volumes of production in

chemicals industry positionsIndia as third largest producer in Asia, next to China and Japan
and twelfth largest in the world. This industry, comprising of both small scale and large scale
units including MNCs produces several thousands of products and bi products, ranging
from plastics to toiletries.
All chemical and chemical related products manufacturing companies are included in
this sector. Even though this industry is one of the oldest, the investors would invest only if
they get their portions of returns on time and at higher rates. When this is done, the investors
would trade the companys shares at a higher rate and reduced volatility. A reduction in
volatility, measured by spread is found for all the companies in this sector. Spread is
calculated for shares traded during March 2010 and the results are shown in Table 3.9.
TABLE 3.9
Spread for Chemicalsbased industries
S.No Chemicals based Industry Number of respondent units Mean Spread

1 Chemicals 45 2.156
2 Alkali and Soda ash 3 1.56
3 Detergents 2 1.45

4 Dry Cell 3 4.8
5 Dyes and Pigments 4 3.24
6 Paints and Varnishes 5 1.166
7 Leather 4 1.985
Total 66 2.33
From Table 3.9, it is inferred that chemicals industry has 45 companies under it and
has a high spread of 2.156. It is also noted that the spread ranges from 1.16 to 4.8. Paints and
Varnishes have the lowest spread of 1.16 and Dry Cell industry is highly volatile on this
sector, having a spread of 4.8.
To get a better insight of the performance of the different industries in this sector,
one-way analysis is applied on the spread of all the Chemicals companies with respect to the
seven industries of this sector. The results are given in Table 3.10. In this regard, the null
hypothesis is formulated as:
H0: There is no significant differences of the mean spread among the seven industries
in the Chemicals sector.
TABLE 3.10
ANOVA testfor the Spread of industries in Chemicals sector
Mean
Square
Within Groups 640.902 59 10.863
Total 698.423 65
N.S Not Significant
Table 3.10shows that since the F value of 0.883 and the p value of 0.513 are
statistically insignificant at 5 % level, the null hypothesis is accepted. Therefore it is
concluded that there is no significant difference among the seven segments of the chemicals
sector.
3.3.6. Industries for the Construction and Infrastructure sector

With excellent opportunities available for this industry, the government of Indiais
taking a number of steps to promote the infrastructure industry. The government has also
issued tax holidays for a few companies in this sector. Construction is the second largest
economic activity in India after agriculture and has been growing rapidly. India is going
through one of the biggest boom in this sector. The regulatory environment is relaxing to
encourage further foreign direct investment in this sector. The governments strong focus on
promoting infrastructure development also extends to tax policy, with a number of tax
initiatives and policy measures available to this sector. Challenges in infrastructure provision
are not unique to India. Uncertainty, scarcity of available funds for investment and competing
priorities present challenges to governments in infrastructure planning and delivery. The
growth of the construction sector implies a good performing economy. Government has taken
initiatives to increase the performance of this sector.A boom in this sector should indicate
good performance of the company, which in turn should be reflected in the performance of
shares in the stock exchanges. These shares must be easily available for trading and
withoutmany fluctuations in price. Thesecharacters are measured by the bid ask spread. In
order to find the spread for this industry, 20 trading days data during March 2010 are taken
and spread is calculated from the stock prices. Construction companies and companies
manufacturing related products are included in this list. The mean spread is given in Table
3.11.
TABLE 3.11
Spread for Construction and infrastructure based industries
S. No
Industry Number of companies Spread
1 Cement 27 1.879
2 Cement Products 6 2.96
3 Ceramics 7 1.48
4 Construction 92 1.87
5 Glass and Glass Products 6 1.97
Total 138 2.03

From Table 3.11, it is understood that average spread for Construction and
Infrastructure companies is 2.03. It is also noted that Cement products industry has the
highest spread of 2.96and Ceramics industry has the lowest spread of 1.48, having just 7

companies. On comparing the spread of industries within the segments the null hypothesis is
developed as such:
H0 :There is no significant differences of the mean spread among the five industries
belonging the construction and infrastructure sector.
The results obtained on using a one-way analysis of variance is given in Table 3.12
TABLE 3.12
ANOVA testfor Spread of industries in Construction and Infrastructuresector

Within Groups 8149.191 133 61.272
Total 8567.949 137
N.S Not Significant
The result of Table 3.12 infers that since the F value of 1.709 and p value of 0.152 are
concluded that there is no significant difference among the five segments of the construction
and infrastructure industry.
3.3.7. Industries for Food and Food Processing Sector
The Food Processing enhances shelf life and adds value even if agricultural produce is
merely cleaned, sorted and packed. Food Processing is an employment intensive in that for
every Rs. 1 million invested, 1.8 jobs and 6.4 indirect jobs are created. (MOSPI). In India, the
technology used in processing is not abreast with international trends in all sectors this is a
significant risk factor for the industry across segments. There are challenges about the storage
and transportation agriculture produce. Food processing is also affected by the poor output
from the agriculture sector. There is continuous demand for fresh food among customers.
These challenges do not hinder the performance of this sector. There has been a significant
inflow of FDI into the food processing sector. Various schemes are put in place to support
this sector. The market for branded foods across different segments of the industry is
undergoing rapid growth in India. Food and groceries from the biggest category of the retail
pie, accounting for 75% of the total.In spite of good performance of the company and good

demand for this sector as a whole, the sector can be termed as good performance sector if its
performance in the secondary markets is good. This is found by the market price of the share,
the trading volume and the frequency of trading. The performance is measured by bid ask
spread, for the twenty trading days during March 2010. The results are given in Table 3.13.
TABLE 3.13
Spread for Food and Food Processing based industries
S.No Industry Number of companies Spread

1 Breweries and Distilleries 7 1.52
2 Cigarettes 3 1.423
3 Food Processing 12 1.92
4 Food Processing MNC 4 1.84
5 Sugar 21 2.24
6 Beverages 12 1.49
7 Solvent Extraction 9 1.99
Total 68 1.57
From Table 3.13, it is seen that the averagespread for the Food Processing industry
ranges from 1.423 to 2.24.It is also found that sugar companies have a highest spread of 2.24
and Cigarettes industry has the lowest spread of 1.423.
The researcher intended to compare the average spread values among these
categories. Therefore a one-way analysis is applied on the spread values of the Food and
Food Processing sector with respect to the internal segmentation.The results are shown in
Table 3.14. The null hypothesisframed in this regard is as shown as:
H0: There is no significant differenceof the mean spread among different industries in
the food processing segment.
TABLE 3.14
ANOVA testfor the Spread of industries in Food and Food Processing sector
Sum of
Particulars df Mean Square F Sig. Result
Squares
Within Groups 3439.872 61 56.391
Total 3533.600 67
N.S Not Significant

From Table 3.14, it is found that since the F value of 0.277 and p value of 0.946 are
concluded that there is no significant difference among the seven segments of the Food
Processing sector. These seven categories have the same type of spread value during the
particular time.
3.3.8 Industries for IT and ITeS Sector
Information Technology is a knowledge based industry which has tremendous

potential from economic growth, productivity improvement and for efficient management.
Majority of the Indian Information Technology firms are small in size, hence cannot explore
the full potential of global opportunities in this sector. Thus, the industry needs a facilitating
environment so that a large number of small firms can grow into large and medium sized
firms.
Information Technology and the IT enabled services are one of the fastest growing
industries. The past decade has witnessed the explosive growth of this sector. A number of
companies were set up. Existing hardware and other related companies were converting
themselves into software companies. Thissectorfaced a number of threats and challenges too.
Companies cleared the acid test and established themselves into profit making units. It is not
only the profits they make or the expansion they have made that determines the performance,
but also necessary that these companies must perform well in the stock exchanges too. The
stock also exchange performance is found using bid ask spread. Spread is calculated for
twenty trading days during March 2010. The results are presented in Table 3.15.
TABLE 3.15
Spread for Information Technology and IT enabled Service based industries
S.No IT and ITeS based Industries Number of respondent units Mean Spread
1 Computer Hardware 9 1.34

2 Software Large 11 1.26
3 Software Small 75 1.55
4 Software Converts 6 1.33
5 Computer Education 5 2.1
Total 106 1.516


Table 3.15 shows that the average spread is 1.516 and spread ranges from 1.33 to 2.1.
It is also noted that the computer education companies had higher volatility whereas the
Large Software Industries had the lowest volatility. On comparing the spread values in the
internal segments, a one-way analysis is applied on the spread values of the IT and IT
enabled Servicessectorand the null hypothesis is as such:
H0: There is no significant differences of the mean spread among the five different
industries in the IT and ITeS sector.
The results of this are shown in Table 3.16.
TABLE 3.16
ANOVA testfor the spread of industries in Information Technology and IT enabled

Services sector
Sum of Mean
Particulars df F Sig.
Squares Square Result
Within Groups 2821.969 101 27.940
Total 2870.021 105
N.S Not Significant
Table 3.16 infers that since the F value of 0.430 and the p value of 0.787 are statistically
insignificant at 5 % level, the research accepts the null hypothesis. Therefore it is concluded
that there is no significant difference among the five segments of the ITand the ITeSsector.
These five categories have the same type of spread values during the particular time.
3.3.9 Industries for the Manufacturing Sector
This is a sector which looks for better utilization of resources. This sector has
witnessed a relative lower growth rates in their operations. In spite of this, new companies

were set. Doors were open for the entry of multinational firms, to set up a manufacturing unit
here. With the introduction and implementation of modern technology, the economy saw a
boom in this sector. It is not only in the number of Joint ventures that would determine the
success of the firm. The success depends very much on the performance of the company in
the stock markets. When investors are satisfied with the performance of the company, it is
reflected in the share trading. Such companies trade at a higher price, trade large volumes of
data and a great ease. Bid ask spread is a measure of these attributes. Spread was calculated
for twenty trading days during March 2010. The results are given in Table 3.17.
TABLE 3.17
Spread for Manufacturingbased industries
S. No Manufacturing based Number of respondent Mean Spread

industries units
1 Cables Power 3 0.976
2 Cables Telephone 5 1.098
3 Consumer goods 5 2.1
4 Cycles 2 1.35
5 Domestic Appliances 6 2.1
6 Electronic Components 8 1.125
7 Molded Luggage 1 1.5
8 Pumps 2 3
9 Refractory 2 2.35
10 Tele communication Equipments 11 1.77
Total 45 1.736
It is found from Table 3.17 that the average spread for this sector is 1.736 andspread
ranges from 0.976 (Cables Power)to 3 (Pumps).In order to find the interrelationship of
average spread among these industries, a one-way analysis of variance test was applied on the
spread for twenty trading days during March 2010 and the results are given in Table 3.18. In
this regard, the null hypothesis is developed as such:
H0: There is no significant difference in the mean spread among the ten different
categories of the industries in the Manufacturing sector.

TABLE 3.18
ANOVA testfor the Spread of industries in Manufacturingsector
Sum of
Squares
Total 206.453 45
N.S Not Significant
From Table 3.18, it is inferred that since the F value of 0.529 and p value of 0.523 are
concluded that the performance of these industry does not differ from each other. These
industries have the same level of performance.
3.3.10 Industries for Mining and Metals Sector
The Mining Sector has witnessed a decline in revenues and problem of excess debt. A
key challenge of the mining sector has been to deliver consistent returns to its shareholders
despite the volatility in the commodity markets. One of the characteristics of high performing
mining company is that it outperforms its peers across a range of metrics over the long run.
Coping up with the problems of volatility risk in commodity markets, competing for
resources, talent shortages and environmental concerns, these companies seek to perform
efficiently in their operations. While these companies focus on their operations, the results
would be reflected in the secondary markets. Good performance would result in an increased
market price and volume of shares. It would also indicate increased liquidity, which is
reflected in the bid ask spread.
Mining and metals includes the companies which are involved in mining or
companies which produces metals. The list of industries under the mining sector, the number
of companies and the spread are given in Table 3.19.
TABLE 3.19
Spread for the Mining and Metals based industries
S.No Industry Number of companies Spread

1 Aluminium and Aluminium Products 3 1.64
2 Mining 28 1.99
3 Diamond 12 2.45

4 Plastic Products 13 3.21
5 Steel Large 9 1.89
6 Steel Medium 23 1.93
7 Steel Sponge Iron 5 1.35
8 Steel Pig Iron 2 1.65
Total 95 2.013
Table 3.19 shows that the average spread for the Mining and Metal Sector is 2.013
and the range of spread is from 1.35(Steel Sponge Iron) to 3.21 (Plastic Products). Sponge
Iron industry has the lowest spread and Plastic Products Industry has the highest spread. To
compare
the spread of these industries, one-wayanalysis of variance test is used. In this regard the null
hypothesis is formulated and given as:
H0: There is no significant difference of mean spread among the different types of
industries in the Mining and Metal Sector.
TABLE 3.20
ANOVA testfor the Spread of industries inMining and Metals sector
Sum of Mean
Particulars df F Sig. Result
Squares Square
Within Groups 4815.668 87 55.353
Total 4947.587 94
N.S Not Significant
not significant, the null hypothesis is accepted. The performance of these industries does not
differ from each other.
3.3.11 Industriesfor MiscellaneousSector

Industries which do not fall under any of the sectors are included in the
Miscellaneoussector. Eight industries are included in this list. The performance of this sector
in the stock exchange is an indication of the perception of the investors about the company.
To substantiate the performance of the company in their operations, their performances in the
stock exchanges are also required to be studies. In this regard, spread is calculated for

companies belonging to this sector for twenty trading days during March 2010 and the results
are given in Table 3.21.
TABLE 3.21
Spread for the Miscellaneous based industries
Miscellaneous Sector based Number of respondent

S. No Mean Spread
Industry units
1 Miscellaneous 46 1.31
2 Diversified 5 2.1
3 Diversified - medium and small 5 1.68
4 Retail 3 1.34
5 Couriers 2 2
6 Photographs 1 1.9
7 Shipping 8 2.42
8 Trading 10 1.03
Total 80 1.72
Table 3.21 shows the mean spreadof this sector is 1.72 and the range of spread is from 1.03
(for Trading industry) to 2.42 (for Shipping industry). To find the inter-relationship of the
mean spread among these industries, a one-way analysis is applied on these eight industries
and given in Table 3.22. In this regard, the null hypothesis formulated is given as:
H0: There is no significant differences of the mean spread among different types of
Miscellaneous based industry.
TABLE 3.22
ANOVA test for the Spread of industries in Miscellaneoussector
Mean
Particulars Sum of Squares df Square F Sig. Result
Within Groups 1023.433 73 14.020
Total 1046.143 80

N.S Not Significant
From Table 3.22, it is found since that the F value of 0.231 and p value of 0.976 are
statistically insignificant at 5 % level, the null hypothesis is accepted. There is no difference
in spread among these different industries. The performance of these industries is not
different from the others. The Table shows that the results are not significant.
3.3.12 Industries for Pharmaceuticals Sector
The Indian pharmaceutical industry currently tops the chart among the industries with
wide ranging capabilities in the complex field of technology. This highly organized sector is
characterized by high growth rate of about 8 to 9 percent annually. India is now among the
top five emerging pharmaceutical markets. The pharmaceutical companies have had a
difficult period where regulators have created a pressure for change within the industry. As a
result, large pharmaceutical companies are shifting to new business model with greater
outsourcing of clinical research. This sector has seen a good sales in the domestic and export
markets. A good sales and a higher growth rate indicates good performance of the company,
which could be reflected in the trading of stock exchanges. When companies perform well in
their operations, the investors have a good expectation about the future performance of the
company. Based on the present performance and the expectation on future performances, the
stock prices are determined. Bid ask spread is calculated from these stock prices of the
company. Bid ask spread for this sector is found for twenty trading days in March 2010, to
check if theoperating performance of the company is reflected in the stock trading and
presented in Table 3.23.
TABLE 3.23
Spread for the Pharmaceuticals based industries
S. No Pharmaceuticals based industries Number of respondent Mean Spread

units
1 Pharmaceuticals and Biotech 41 1.72
2 Pharma bulk drugs 18 1.23
3 Pharma Indian Formulation 8 1.26
4 Pharma MNC 6 1.28
5 Personal Care Indian 6 1.98
6 Personal Care MNC 4 1.96
Total 83 1.571

Table 3.23 indicates that the average spread for the pharmaceutical sector is 1.571 and
the range of spread is from 1.23(for Pharmaceutical bulk drugs) to 1.98 (forIndian Personal
care industry). The researcher intends to compare the spread among these industries
belonging to the Pharmaceutical sector using one way analysis. In this context the following
null hypothesis is formulated
H0: There is no significant differences of the mean spread among the different types
of Pharmaceutical based industries.
Table 3.24 presents the results of Analysis of variance test.
TABLE 3.24
ANOVA testfor the Spread of industries in Pharmaceuticalsector
Mean
Square
Within Groups 774.423 77 10.057
Total 802.906 82
N.S Not Significant
From Table 3.24, it is found that since the F value of 0.566 and p value of 0.725,
which are statistically insignificant at 5% level, the null hypothesis is accepted. There are no
differences between the performances of different industries in this sector. The spread of
these industries are not dependent on the performance of the others.
3.3.13 Power and EnergySector
Power and Energy has witnessed a number of policy changes, fluctuations in selling
prices, challenges in procurement of raw materials and generation of power. Governments
interference in this sector was the highest. Policy changes and procedural changes were
frequently issued by the government. Being one of the most demanded products there was a
very large gap between the demand and supply. The demand for this product was highest.
There were issues on mounting debt on part of power companies. These factors affected the
performance of this industry. Though these issues dominate the power and energy sector, the
performance of the power generation companies were geared. With just a few players in the

power generation markets, it was a very challenging task for these few companies to meet the
demand of the whole country.
The performances of the power generation companies are reflected by their behavior
in the stock exchange. If the company performs well, then the share of this company would
be traded without any hassles. In case of a declaration of loss or failure to perform, it would
reflect on the stock exchanges.
Spread is calculated for twenty trading days during March 2010. Spread is calculated
from the market price and any large change in the share price would show an increased
spread. Spread for the power and energy sector is shown in Table 3.25.
TABLE 3.25
Spread for the Power and Energy based industries
S .No Industry Number of companies Spread

1 Oil Drilling and Gas 12 1.02
2 Power Generation and Supply 21 1.56
3 Refineries 7 1.23
4 Petro Chemicals 4 1.5
Total 44 1.327
It is inferred from Table 3.25 that the mean spread is 1.327. It is very surprising to
note that the spread ranges from 1.02 (Oil Drilling and Gas) to 1.56 (for Power Generation
and supply).To compare the performance of these industries among this sector, one-
wayanalysis of variance is used and results are given in Table 3.26. In this context the null
hypothesis is formulated as such:
H0 :There is no significant difference among the mean spread of companies
belonging to the power generation sector.
TABLE 3.26
ANOVA test for the Spread of industries in Power and Energy sector

Within Groups 575.527 40 14.388
Total 596.554 43

N.S Not Significant
Table3.26 indicates that since the F value of 0.487 and p value of 0.693 are
statistically insignificant at 5 % level, the null hypothesis is accepted. There is no significant
difference among the performance of these sectors.
3.3.14 Printing and StationarySector
This sector is one of the fastest and innovative sectors. This industry is a very
heterogeneous group of business. Paper and paper related products are tremendously gaining
demand in the market. This sector is influenced by macroeconomic development, national
income and the Indian population. The Indian stationery has a very scattered nature and
constantly changing trend. Innovation plays a major role in the development of this industry.
It is not only necessary to be innovative and post returns but also to perform well in
the trading of shares. The latter is the result of the former and is reflected in the movement of
prices of shares. This is measured by the bid ask spread. the data on trading of shares is taken
for 20 trading days during March 2010 and spread is calculated. The results are given in
Table 3.27.
TABLE 3.27
Spread for Printing and Stationary based industries
S.No Printing and stationary based Number of respondent Mean

Industry units Spread
1 Printing and Stationary 6 2.05
2 Paper 14 2.05
3 Packaging 18 1.25
Total 38 1.78
From Table 3.27, it is seen that the mean spread for the industries is 1.78 and the
spread ranges from 1.25 to 2.05. To compare the performance of these industries in this
sector, one-way analysis of variance is used. Theresults obtained are presented in Table 3.28.
The null hypothesis formulated here in this regard is as such:
H0: There is no significant difference of the mean spread among the different types of
Printing and Stationery sector.

TABLE 3.28
ANOVA testforSpread of industries in Printing and Stationarysector
Sum of
Squares
Within Groups 685.571 35 19.588
Total 693.108 37
N.S Not Significant
It is found from Table 3.28 that F value of 0.192 and p value of 0.826 are statistically
insignificant at 5 % level. So the null hypothesis is accepted. This shows that there are no
differences between the performances of the industries in this sector. The performance of
these sectors does not vary among this sector.
3.3.15 Industries for Services Sector
The service sector too has witnessed rapid growth. Over the past decade, with new
service providers, this sector has grown in leaps and bounds. New players have emerging in
the Entertainment and Media space, with lot of new channels and news lines. Many
specialized service are set up in the Healthcare and in the Hotel industry. With the
introduction of new policies in the telecommunication sectors, a lot of multinational service
providers have entered the markets. Indian service providers too have transformed themselves
into giants. Services is one of the fastest growing industries. the operating performance is
reflected in the trading of the shares. When investors are happy about the performance of the
company, they tend to buy the shares at higher prices. Selling activity is less than buying of
shares. The prices at which the share is quoted are done efficiently, without fluctuations in
prices. bid ask spread, a measure used to measure liquidity and volatility of shares is found
for twenty trading days during March 2010. The results are presented in Table 3.29
TABLE 3.29
Spread for the Services based industries

S.No Services based Industries Number of Mean Spread
respondent units
1 Entertainment and Media 43 2.1
2 Healthcare 7 1.1
3 Hotels 15 1.28
4 Telecommunications Service Providers 7 1.72
5 Transport Airlines 2 3.1
6 Travel Agencies 1 1.6
7 Recreation 1 0.25
Total 76 1.592
From Table 3.29, it is seen that the average spread is 2.1and spread ranges from 0.25
(for Recreation industry) to 3.1(forAirlines industry). To find if there is any difference
between the performances of the industries, one-wayanalysis of variance is used and the
following results are obtained and given in Table 3.30. In this regard, the null hypothesis is
given as such:
H0 :There is no significant difference of the mean spread among different industries

in the Services sector.
TABLE 3.30
ANOVA test for the Spread of industries in Services sector
Particulars Sum of Squares df Mean Square F Sig.

Result
Within Groups 1301.518 69 18.863
Total 1354.377 75
N.S Not Significant
From Table 3.30, it is understood that since the F value of 0.467 and p value of 0.830
are statistically insignificant at 5 % level, the null hypothesis is accepted.The results infer that
there is no significant difference between the performances (measured by spread) among
these industries.
3.3.16 Industries under Textiles and Allied Products
Developing countries account for two-thirds of the world exports in textiles and
clothing. Indian accounts of 22 percent of the worlds installed capacity of spindles and is one

of the largest exporters of yarn in international market. Indian industry contributes 25% share
in the world trade of cotton yarn. The textile companies in India are mostly small scale, non
integrated spinning, weaving, and apparel making enterprises. So this sector has faced issues
on taxes, labor policies. Small scale dominated the markets. The textile export basket consists
of readymade garments, cotton textiles, textiles made from manmadefiber, wool silk,
handicrafts, coir and jute. Textile sector is one of the main employment providers with the
lowest labor productivity levels. . While the demand for textiles is on increase, the segment
faces scarcity of raw material cotton, due to failed monsoons. The government constantly
issues policies to boost the textile segment. Having an FDI of less than 10%, the sector is not
without challenges. In the southern parts of the country, this sector is hit by severe power
crises. However, the trading of this sector in the stock exchanges mentions the performance
of this sector. Bid ask spread is calculated from the stock prices for twenty trading days
during March 2010, to assess the liquidity of this sector. The list of industries belonging to
the textile sector, the number of companies in each industry and their spread are given in
Table 3.31
TABLE 3. 31
Spread for Textiles and Allied Products based industries
S.No Textiles based industries Number of Respondent Mean Spread

units
1 Textile Machinery 2 1.12
2 Textile Composite 8 1.78
3 Textile Cotton/Blended 27 7.99
4 Textile Manmade 15 1.79
5 Textile Processing 18 1.45
6 Textile Products 21 1.176
7 Textile Silk 2 1.07
8 Textile Spinning 7 1.45
Total 100 2.228

From Table 3.31, it is found that the mean spread for the textile sector is 2.228 and
spread ranges from 1.07(for Textile Silk) to 7.99 (for Textile Cotton/ Blended). To find
the difference between the performances of these industries and to find if the performance of
one industry is influenced by the performance of the other,One-wayanalysis test is used here
and the results obtained are in Table 3.32. In this context, the null hypothesis is formulated as
such:

H0: Thereis no significant difference in spread among different industries in the
textiles sector.
TABLE 3.32
ANOVA testfor the Spread of industries in Textiles and Allied Products sector

Within Groups 12538.852 92 136.292
Total 13081.422 99
N.S Not Significant
Table 3.32 indicates that since the F value of 0.569 and p value of 0.780 are statistically
insignificant at 5 % level, the null hypothesis is accepted. . There is no difference between the
performances of the different industries in this sector. The performance of one company is
not influenced by the performance of the other.
3.4 SPREAD FOR THE INDICES ON THE NSE
An index is formed by taking a group of companies and setting this as a benchmark.

Index is formed by taking the best performing companies. So the index forming companies
are the most liquid companies, which have a high trading volume and more number of shares
traded and hence large capitalization too. Indices are used for formation of products based on
the indices, which includes index derivatives and index based mutual funds. Performance of
any company or index in ther stock exchange is found using bid ask spread. The essence of a
study on market microstructure is the analysis of bid ask spread. Since the index forming
companies are highly liquid, the researcher intends to compare the performance of the index
forming companies and the non index forming companies, belonging to the same sector.
When the index is a standalone type, not dependent on any industries, a comparison is made
between two such indices.
During the period of study, the indices of the NSEwere classified into 4 broad
categories. They are the Broad Market Indices, the Sectoral Indices, the Thematic Indices and
the Strategy Indices.
3.4.1. BROAD MARKET INDICES

Broad Market Index includes the broad category of indices of the NSE. This index
gives an overall view of the performance of the market. The top performing companies, in
terms of number of trades and capitalization alone form these indices. There are five Broad
Market Indices. The classifications of the index are the S &P Nifty Index, the CNX
NiftyJunior Index, the CNX 100, the CNX 200 and CNX 500.
3.4.1.1 Standard&Poors CNXNIFTY

Crisil National Stock Exchange Index is termed as CNXNIFTY.NIFTY is owned
and managed by India Index Services and Products Ltd (IISL), which is a joint venture
between CRISIL and NSE. The index maintenance subcommittee takes all decisions on
addition or deletion of the companies in any index. NIFTY consists of most liquid top 50
companies from 22 sectors, with high capitalization, lowest impact cost and which are
available for trading on the NSE. This index is used for a variety of purpose like
benchmarking fund portfolios, index based derivatives and index funds. The CNX Nifty
Index represents about 65.87% of the free float market capitalization of the stocks listed on
NSE as on December 31, 2012. The total traded value for the last six months ending
December 2012 of all index constituents is approximately 50.23% of the traded value of all
stocks on the NSE. The impact cost of the CNX Nifty for a portfolio size of Rs. 50 lakhs is
0.06% for the month December 2012. From 26 June 2009 onwards, free float capitalization
weighted method is used wherein the level of the index reflects the total market value of all
stocks on the index relative to a particular base period. The base value for the CNX Nifty is
the close prices on November 3. 1995, the date whereby the NSE had completed one year of
operations in the Capital market segment. The base value of the index is 1000 and the base
capital, Rs 2.06 trillion.
Companies eligible for inclusion in CNX Niftyshould have at least 10% floating stock
(shares which are not held by promoters and associated entities). The security should have
traded at an average impact cost of 0.50% or less during the last six months for 90% of the
observations for a basket size of Rs. 2 Crores.
A company which comes out with an IPO will be eligible for inclusion in the index, if
it fulfills the normal eligibility criteria for the index like impact cost, market capitalization
and floating stock, for a 3 months period instead of a 6 month period. The microstructure of
companies forming the Nifty is studied. The list of Nifty companies and their spread are
given in Table 3.33.
TABLE 3.33

List of Companies forming Niftyindex
Mean
S.No Name of the Company Industry
Spread
1 ABB Limited Electrical Equipments 1.2
2 ACC Limited Cement 1.6
3 Ambuja Cements Limited Cement 1.1
4 Axis Bank Limited Banking 1.5
5 Bharti Airtel Limited Telecom service providers 0.25
6 Bharat Heavy Electricals Limited Electrical 1
7 Bharat Petroleum Corporation Limited Refineries 1.1
8 Cairn India Limited Oil exploration 1.2
9 Cipla Limited Pharmaceuticals 0.5
10 DLF Limited Construction 3
11 GAIL (India ) Limited Gas 1.7
12 Grasim Industries Limited Cement 1.5
13 HCL Technologies Computers software 1.23
14 Housing Development Finance Corporation Finance 1.5
15 HDFC Bank Limited Banking 0.24
16 Hero Honda Limited Automobiles 1.6
17 Hindalco Industries Limited Aluminium 1.7
18 Hindustan Unilever Limited Diversified 0.6
19 ICICI Bank Limited Banking 1.4
20 IDEA Cellular Limited Telecom service providers 0.73
21 IDFC Limited Finance 1.2
22 Infosys Limited Computers software 1.6
23 ITC Limited Cigarettes 1.8
24 Jindal Steel and Power Limited Steel 1.7
25 JaiPrakash Associates Limited Construction 1
26 Larsen & Toubro Limited Engineering 1.5
27 Mahindra & Mahindra Limited Automobile -4 wheelers 1.45
28 Maruti Suzuki India Limited Automobiles 4 wheelers 0.7
29 NTPC limited Power 0.78
30 Oil and Natural Gas Corporation Limited Oil exploration 0.46
31 Punjab National Bank Banking 1.5
32 Power Grid Corporation of India Limited Power 0.9
33 Ranbaxy Pharmaceuticals 1

34 Reliance Capital Finance 0.923
35 Reliance Communications Limited Telecom service providers 1.6
36 Reliance Industries Limited Refineries 1.8
37 Reliance Infrastructures Limited Power 1.7
38 Reliance Power Limited Power 1.22
39 Steel Authority of India Limited Steel 1.5
40 State Bank of India Banking 1.65
41 Siemens Electrical equipments 1.76
42 Sterlite Industries (India) Limited Mining 1.5
43 Sun Pharmaceuticals Limited Pharmaceuticals 1.1
44 Suzlon Energy Limited Electrical equipments 1.5
45 Tata Motors Limited Automobiles 4 wheelers 0.35
46 Tata power Limited Power 0.67
47 Tata Steel Limited Steel 0.5
48 TCS Limited Computers software 0.36
49 Unitech Limited Construction 1.5
50 Wipro Limited Computers software 1.9
Mean Spread 1.23

From Table 3.33, it is inferred that the average spread for the companies forming the
Nifty is 1.23 and its spread ranges from 0.24 (forHDFC Bank) to 3 (for DLF Limited). DLF
Limited is the most volatile stock in the Nifty. For the other companies, the spread is low.
Mean spread is consistent for the Nifty forming companies. The index forming companies are
the most liquid and with the lowest impact cost. Here it is found that spread is low for these
companies, which makes them eligible to form the Nifty.
3.4.1.2CNXNIFTY Junior
The next group of liquid securities after CNX Nifty is the CNX NiftyJunior.
NiftyJunior is the index formed with the next set of 50 most liquid stocks, afterNifty.
NiftyJunior had a market capitalization of Rs 2, 92,316 crores. The next set of fifty
companies, which is most liquid, has a very low impact cost and which has high trading
volume are included in the list.The CNX NiftyJunior Index represents about 12.07% of the
free float market capitalization of the stocks listed on the NSE as on December 31, 2012. The
total traded value for the last six months ended in December 2010 of all the index

constituents is approximately 17.14% of the traded value of all the stocks on the NSE. The
impact cost for CNX NiftyJunior for a portfolio of size Rs 25 lakhs in 0.08% for the month
December 2012. From May 4, 2009, CNX NiftyJunior is computed based on free float
methodology. CNX NiftyJunior was introduced on January 1, 1997 with base date and base
value being November 3, 1996 and 1000 respectively and a base capital of 0.43 trillion.
These companies should have an average impact cost of 0.5% or less during the last 6 months
from 90% of the observations for a basket size of Rs. 50 lakhs. The microstructure of
companies forming the Nifty Junior are analyzed. So the bid ask spread of these companies
are computed. Givenin Table 3.34is the list of companies forming the NiftyJunior index and
their spread.
TABLE 3.34
List of companies forming NiftyJunior
S.No Name of the company Industry Spread

1. Aditya Birla Nuvo Limited Textiles 0.3
2. Adani Enterprises Limited Trading 1.24
3. Andhra Bank Banking 1.55
4. Ashok Leyland Limited Automobiles HCV 1.6
5. Asian Paints Limited Paints 1.2
6. Bajaj Auto limited Automobiles 2 0.35
7. Bank of Baroda wheelers 0.34
8. Bank of India Banking 1
9. Bharat Electronics Limited Banking 1.2
10. Bharat Forge Limited Electronics 1
11. Biocon Limited Forging 1.13
12. Canara Bank Pharmaceuticals 0.11
13. Colgate Palmolive (India) Limited Banking 1.54

14. Container corporation of India Ltd Personal care 1
15. Corporation Bank Travel 1.45
16. Crompton Greaves ltd Banking 1.6
17. Cummins India Ltd Electrical equipments 1.2
18. Dr.Reddys Laboratories Engines 0.47
19. Federal Bank Ltd Pharmaceuticals 1.2
20. GlaxoSmithKline Ltd Banking 0.45
21. Glenmark Pharmaceuticals Ltd Pharmaceuticals 1
22. GMR Infrastructure Pharmaceuticals 1.5
23. Housing Development and Infrastructure Construction 1.23
24. ltd Construction 0.67
25. Hindustan petroleum Corporation Limited Refineries 1.1
26. Indiabulls Real Estate Ltd Construction 1.3
27. IDBI Bank Banking 1.45
28. IFCI Ltd Finance 1.5
29. Indian Hotels ltd Hotels 1.5
30. Indian Overseas Bank Banking 1.2
31. JSW Steel Ltd Steel 1.95
32. Kotak Mahindra Bank Limited Banking 1.6
33. LIC Housing Finance Ltd Finance 1.7
34. Lupin Limited Pharmaceuticals 5.1
35. United Spirits ltd Breweries 1.4
36. Moser Baer India Limited. Computer hardware 1.3
37. Mphasis Ltd Computer software 1.4
38. Mangalore Refinery and Petrochemicals Refineries 1.7
39. Ltd Miscellaneous 1.1
40. Mundra Port and SEZ Ltd Computer software 1.1
41. Oracle financial services Computers software 1.8
42. Patni Computers Ltd Finance 1.42
43. Power Finance Corporation Ltd Gas 1
44. Reliance Natural Gas limited Mining 1
45. Sesa Goa Ltd Banking 0.44
46. Syndicate Bank Telecom services 1.5

47. Tata Teleservices Ltd Computers software 1.2
48. Tech Mahindra ltd Cement 1
49. Ultratech Cement Limited Banking 1.2
50 Union Bank of India Pesticides 1.1
United Phosphorous Ltd Media
Zee Entertainment Enterprises Ltd 1.24
Total
Table 3.34 shows that the average spread for the NiftyJunior is 1.24 and its spread
ranges from0.11 (for Canara Bank) to 5.1 (for United Spirits). Spread is below 1.6 for all the
companies except for United Spirits limited which has high volatility. The spread for
NiftyJunior is almost the same as the spread for Nifty companies. This result is very
surprising as the Nifty junior companies are said to be less liquid than Nifty forming
companies. This is due to high trading volume of the NiftyJunior companies. But Nifty Junior
is characterized by high volatility as the range of spread is high. March 2010 is also
characterized by high volatility. The number of selling activity was greater than the buying
activity. These may be a few reasons for a high spread for Nifty companies. To compare the
performance of Nifty with NiftyJunior, one-wayanalysis of variance is used, and the results
Comparison between Nifty NiftyJunior companies
Nifty, being the index of the National Stock Exchange, comprises of 50 most liquid
stocks which has a high market capitalization, lowest impact cost and which are available for
trading in the stock exchanges. The next 50 companies which possess the characters
mentioned above form the NiftyJunior index. A comparison between the Nifty and
NiftyJunior is done. The results of the descriptive statistics are shown in Table 3.35.
TABLE 3.35
Descriptive Statistics for Nifty and NiftyJunior
Particulars N Mean Std. Deviation Std. Error

nifty companies 50 1.23 0.71684 0.10138
nifty junior companies 50 1.24 0.94580 0.13376
Total 100 1.235 0.84269 0.08427

It is found from Table 3.35 that the mean spread for Nifty companies is 1.23 and for
NiftyJunior, it is 1.24 and the overall mean ofNifty and NiftyJunioras a whole is 1.235. The
overall spread for both segments taken together is low compared to the average spread of all
stocks taken together.
To compare the spread values among the Nifty and NiftyJunior companies, a one-way
analysis is applied on the spread values of the Nifty and NiftyJunior companies.in this regard,
the null hypothesis is formulated as such:
H0 : There is no significant difference in mean spread among the Nifty forming and
Nifty Junior forming companies.
The results are presented in Table 3.36.
TABLE 3.36
ANOVA test for spread of companies forming Nifty and Nifty Junior indices
Sum of Mean
Particulars Df F Sig. Result
Squares Square
Within Groups 69.012 98 .704
Total 70.302 99
N.S Not Significant
It is noted from Table3.36 that since the F value of 6.833 and p value of 0.649 are
concluded that there is no significant difference among the 2 segments of classification. The
spread for Nifty index is 1.23 whereas the spread for NiftyJunior index is 1.24, which is
slightly higher than the Nifty.
3.4.1.3 CNX 100
CNX index is set up by the NSE. It is a diversified 100 stock index accounting for 38
sectors of the economy. It is owned and managed by India Index Services and Products Ltd
(IISL), which is a joint venture between CRISIL and NSE. IISL is Indias first specialized
company focused upon the index as a core product. The CNX 100 index represents about
77.94% of the free float market capitalization of all the stocks listed on the NSE as on
December 31, 2012. The total traded value for the last six months ending December 2012 of

all index constituents is approximately 67.38% of the traded value of all the stocks on the
NSE. The impact cost for CNX 100 for a portfolio size of Rs. 50 lakhs is 0.06% for
December 2012. From June 26, 2009, CNX 100 is computed based on free float
capitalization method, where the level of the index reflects the total market value of all the
stocks in the index relative to a particular base period. The method also takes into account
constituent changes in the index and importantly corporate actions without affecting the
index. The base date for this index in January 1, 2003 and the base value is 1000. CNX 100 is
also the combination of Nifty and NiftyJunior. The microstructure of CNX 100 companies is
found through computing the bid ask spread of these companies. Table 3.37 discloses the
descriptive statistics for companies forming the CNX 100 index.
TABLE 3.37
Descriptive Statistics for companies forming the CNX 100 index
Particulars N Mean Std. Deviation

Index forming companies 100 1.235 .84269
Non index forming companies 1190 1.714 5.96729
Total 1290 1.821 5.74576
Table 3.37 shows that a comparison is done between the 100 index forming
companies and the remaining 1190 non index forming companies.It is found that the mean
spread for the index forming companies is 1.23, which is a combination of Nifty and Nifty
Junior companies. The mean spread for the rest of the companies is 1.714. This forms a total
spread of 1.821.Spread for the CNX 100 companies ranges from 0.11 (Canara Bank) to 5.1
(McDowell).
The researcher wishes to compare the spread within the internal segments namely
the CNX 100 and other companies. Therefore a one-way analysis is applied on the spread
values are applied on these companies and the results are given in Table 3.38.In this regard
the null hypothesis is formulated as such:
H0 : Thereis no significant difference in the mean spread among the CNX 100 index
forming companies and the non index forming companies.
TABLE 3.38
ANOVA test for spread of companies forming the CNX 100 index

Sum of Mean
Squares Square
Between Groups 145.870 1 145.870 4.430 .036 Sig
Within Groups 42408.891 1288 32.926
Total 42554.761 1289
Sig Significant
From Table3.38, it isshown thatsince the F value of 4.430 and p value of 0.036 are
statistically significant at 5 % level, the null hypothesis is rejected. Therefore it is concluded
that the spread for the CNX 100 companies are lower than the non index companies. The
comparison of mean values of spread indicates that the spread is lower for the index forming
companies, which means, these shares are relatively more liquid than the other 1190
companies.
3.4.1.4 CNX 200
The CNX 200 Index is designed to reflect the behavior and performance of the top
200 companies measured by free float market capitalization. The index comprises of 200
such companies that are listed on the NSE. The CNX 200 has a base date of January 1, 2004
and a base value of 1000, wherein the level of the index reflects the total free float market
value of all the companies in the index relative to particular base market capitalization values.
The CNX 200 Index represents about 86.88% of the free float market capitalization of the
stocks listed on the NSE as on December 31, 2012. The total traded value for the last six
months ending December 2012 of all index constituents is approximately 84.05% of the
traded value of all the stocks on the NSE. The criteria for the CNX 200 Index include the
following. Top 300 companies ranked on average free float market capitalization and
aggregate turnover for the last six months form part of the eligible universe for selection of
companies in the index. The company should have a trading frequency of at least 90% in the
last six months, with an Investible Weight Factor (IWF) of at least 10%. This list includes the
top 200 companies in terms of their liquidity and market capitalization. Along with the CNX
100 companies, 100 more companies are included in this list. the non index forming
companies are 5 times the CNX 200 companies.The microstructure of the CNX 200 forming
companies are found by computing the bid ask spread of these companies. The range
between the highest spread and the lowest spread is very wide, indicating wide fluctuations in

spread. Table 3.39 shows the descriptive statistics for companies forming the CNX 200
index.
TABLE 3.39
Descriptive Statistics for companies forming the CNX 200 index

Index forming companies 200 1.54 2.15364
Total 1290 1.821 5.74593
Table 3.39infers that the mean spread for the CNX 200 companies is 1.54 and the
mean spread for the non index companies is 1.86. This Table also indicate that the standard
deviation for the index forming companies are lower than those of the non index forming
companies, which concludes that the CNX 200 companies are less volatile that the non- index
forming companies. The CNX 200 companies have outperformed the rest of the companies.
The average values of spread among the index and non index forming companies are
analyzed with respect to these two segments using one way analysis of variance and the
results are given in Table 3.40.the null hypothesis in this regard is as such:
H0 : There is no significant difference in mean spread among the CNX 200 forming
companies and the other non index forming companies.
The results of this are presented in Table 3.40.
TABLE 3.40
ANOVA test for spread of companies forming CNX 200 index
Sum of Mean
Squares Square
Within Groups 42488.053 1288 32.988
Total 42557.311 1289

N.S Not Significant
From Table 3.40, it is understood thatsince the F value of 2.099 and p value of 0.048
are statistically significant at 5 % level, the null hypothesis is rejected. . It is concluded that
there is a significant differences among these two sectors. The CNX 200 is a better performer
than the non-index forming companies.
3.4.1.5 CNX 500
CNX 500 is Indias first broad based benchmark of the Indian capital market. This
index represents about 95.37% of the free float market capitalization of the stocks listed on
the NSE as on December 31, 2012. The total traded value for the last six months ending 31
December 2012 of all the Index constituents is approximately 94.11% of the traded value of
all stocks on the NSE. The CNX 500 companies are disaggregated into 72 industry indices.
Industry weightages in the Indies reflects the industry weightages in the market. The base
year for the CNX 500 is 1994 with the base value of 1000. CNX 500 equity index reflects the
market as closely as possible. In order to ensure that this is accomplished, industry
weightages in the index mirror the industry weightages in the universe. It consists of 71
industries including one category of diversified companies and one category of
miscellaneous. Consists of 500 top performing companies in terms of market capitalization.
Out of the total population, nearly 45% of companies form CNX 500. This index denotes a
wider representation of companies, belonging to different sectors.The microstructure of these
companies are found by computing the bid ask spread. The descriptive statistics for the
companies forming CNX 500 index are disclosed in Table 3.41.
TABLE 3.41
Descriptive Statistics of spread for companies forming the CNX 500 index

Index forming companies 500 1.793 3.63366
Total 1290 1.821 5.69442
The 1290 companies are classified into index forming companies and non index
forming companies. the CNX 500 list consists of top performing 500 companies in terms of

liquidity and high trading volume. The non index forming company is formed by the
remaining 790 companies. It is found from Table 3.41 that the average spread for the CNX
500 companies is 1.793 whereas for the non- CNX 500 companies, it is 1.809. On comparing
the performance of the CNX 500 with the other companies, it can be concluded that the
spread values for the CNX 500 and the other companies are almost the same. Compared to
the other classification of companies, the difference between these two categories of
companies is very low. CNX 500 is the largest index on the NSE as it constitutes the
maximum number of shares. To compare the spread values among the CNX 500 and the
other companies, one-way analysis is applied on the spread values of CNX 500 and the other
companies. In the given context, the null hypothesis is formulated as:
H0 : There is no significant difference of mean spread among the CNX 500 index
forming and non index forming companies.
The results are given in Table 3.42.
TABLE 3.42
ANOVA test forspread of companies forming the CNX 500 index
Sum of Mean
Squares Square
Within Groups 42850.087 1321 32.438
Total 42867.786 1322
N.S Not Significant
Table 3.42shows that since the F value of 0.546 and the p value of 0.460 are
statistically insignificant at 5 % level, the null hypothesis is accepted. . Therefore it is
concluded that there is no significant difference between the CNX 500 companies and the
other non index forming companies, during March 2010. The lowest difference between
thetwo samplessupports the lowest difference among these two segments.
3.4.2 SECTORAL INDICES
The National Stock Exchange has formed 17 indices, belonging to different sectors.
These indices were constituted within the past ten years. These indices are managed by a
team of professionals at the India Index Services and Products Limited (hence forth IISL), a

subsidiary of the NSE, set up exclusively to manage and monitor the index services. There is
a three tier governance structure comprising of the Board of Directors of IISL, the Index
Policy Committee and the Index Maintenance Sub-Committee. Each of these indices has
different commencement dates and a different base date for calculations. The companies that
are selected to form the index should possess the following characteristics. The companies
must rank within the top 500 companies by average free float market capitalization and
aggregate turnover for the last six months. The companies trading frequency should be at
least at 90% in the last six months. The company should have a positive net worth and
Investible Weight Factor (IWF) of at least 10%. The company should have a listing history of
sixmonths. A company which comes out with an IPO is eligible for inclusion in the index, if
it fulfills the normal eligibility criteria for the index for a threemonth period instead of a six
month period. The final selection of companies is based on free float market capitalization.
These indices are re-balanced semi annually. The cutoff dates are January31st and July
31st. Six weeks prior notice is given to market from the date of change. In this section, the
indices and their spread are analyzed.
3.4.2.1CNX Automobile Index
The CNX Auto Index is designed to reflect the behavior and performance of the
automobile sector which includes manufacturer of cars and motorcycles, heavy vehicles, auto
ancillaries and tyres. The CNX Auto Index comprises of 15 stocks that are listed on the
National Stock Exchange. The CNX Auto Index is computed using free float market
capitalization method with a base date of January 1, 2004, indexed to a base value of 1000.
The CNX Auto Index represents about 7.07% of the free float market capitalization of the
stocks listed on the NSE and 94.18% of the free float market capitalization of the stocks
forming part of the Automobile sector universe as on December 31, 2012. The total traded
value for the last six months ending December 2012 of all index constituents is
approximately 6.67% of the traded value of all stocks on the NSE and 94.98% of the traded
value of the stocks forming part of the Automobile sector universe. The microstructure of
these companies are found by computing the bid ask spread. Given in Table 3.43 are the list
of companies which form the Automobile Index and their mean spread.
TABLE 3.43

List of companies forming the CNX Automobile Index
S.No Name of the Company NSE Symbol Spread

1. Amtek Auto Limited AMTEKAUTO 1.77
2. Apollo tyres Limited APOLLOTYRE 1.9
3. Ashok Leyland Limited ASHOKLEY 1.6
4. Bajaj Auto Limited BAJAJ-AUTO 0.35
5. Bharat Forge Limited BHARATFORG 1
6. Bosch Limited BOCSCHLTD 1.45
7. Eicher Motors Limited EICHERMOT 1.4
8. Exide Industries Limited EXIDEIND 1.6
9. Hero Motors Limited HEROHONDA 1.6
10. MRF Limited MRF 1.2
11. Mahindra and Mahindra M&M 1.45
12. Limited MARUTI 0.7
13. Maruti Suzuki India Limited MOTHERSUMI 1.4
14. Motherson Sumi Systems TVSMOTOR 1.1
15 Limited TATAMOTOR 0.35
TVS Motor Company Limited
Tata Motors Limited 1.258
Table 3.43 represents the spread for the companies forming the Automobile Index. It
is found that the mean spread is 1.258 andthe spread ranges from 0.35 (for both Bajaj Auto
and Tata MotorsLimited) to 1.9 (Apollo Tyres Ltd). The mean spread for the index forming
companies is low. It is an indication of good performance of this set of companies. The
descriptive statistics for the companies forming the Automobile index and their spread are
givenin Table 3.44.
TABLE 3.44
Descriptive Statistics for spread of companies forming CNX Automobile Index

index forming companies 15 1.258 3.80440 .98229
non index forming companies 62 1.90 3.95282 .50201
Total 77 1.77 3.90393 .44489
It is inferred from Table 3.44 that the number of index forming companies is 15 and
the number of non index forming companies is 62 and their meanspread are 1.258 and 1.9
respectively. It is seen that the spread for the index forming companies is 1.258, at a much
lower level compared to a high level of 1.9. The average spread for the Automobile index is
1.77. A comparison is made between the index forming companies and non index forming
companies using one way analysis of variance. In this context the null hypothesis is
formulated as such:
H0: There is no significant different in mean spread among the CNX Automobile
index and the other automobile companies which do not form the index.
TABLE 3.45
ANOVA test for spread of companies forming the Automobile Index
Sum of
Squares
Within Groups 1155.742 75 15.410
Total 1158.291 76
Sig Significant
From Table 3.45, it is understood that since the F value of 7.165 and p value of 0.0685, which
are statistically significant at 5 % level, the results would reject the null hypothesis. So it is
concluded that there is a significant difference between the performance (measured by
spread) of the index forming companies and non index forming companies. It is said that the
index forming companies are better in performance to non index forming companies.
3.4.2.2.Bank index
The Indian Banking Industry is undergoing major changes, reflecting a number of

developments. Due to the advancement of communication and internet technology, the

growth in internet banking is tremendous. This has resulted in the ATMs, Electronic Transfer
of Funds, and quick dissemination of information. A lot of reforms were also introduced in
the banking sector. The implementation of Basel norms and the structural reforms in the
banking sector which includes introduction of Securitization Act towards loan recoveries,
establishment of Asset Reconstruction companies, initiatives on improving recoveries from
Non- Performing Assets (NPAs) and change in the basis of income recognition has raised
transparency and efficiency in the banking sector in order to develop a good benchmark of
the Indian Banking sector, the IISL has developed the CNX Bank Index. The CNX bank
index is an index comprised of most liquid and large capitalized Indian Banking stocks. The
index has 12 stocks from the banking sector, which trade on the National Stock Exchange.
CNX Bank Index is computed using free float market capitalization method, wherein the
level of index reflects the total free float market value of all the stocks in the index relative to
particular base market capitalization value. The CNX Bank Index represents about 15.89% of
the free float market capitalization of the stocks listed on the NSE and 87.59% of the free
float market capitalization of the stocks forming part of the banking sector universe as on
all the index constituents is approximately 14.41% of the total value of all the stocks on the
NSE and 84.11 % of the traded value of the stocks forming part of the Banking sector
universe. The microstructure of these companies are found by computing the bid ask spread.
The list of banks which form the index and their spread are given in Table 3.46.
TABLE 3.46
List of companies forming the CNX Bank Index
S.No Name of the bank NSE symbol Spread

1. AXIS BANK LTD AXISBANK 1.5
2 BANK OF BARODA BANKBARODA 0.34
3 BANK OF INDIA BANKINDIA 1
4 CANARA BANK CANBK 0.11
5 HOUSING DEVELOPMENT FINANCE HDFCBANK 0.24
CORPORATION BANK
6 ICICI BANK LTD ICICIBANK 1.4
7 INDUSIND BANK INDUSINDBK 1.54
8 KOTAK MAHINDRA BANK KOTAKBANK 1.95
9 PUNJAB NATIONAL BANK PNB 1.5
10 STATE BANK OF INDIA SBIN 1.65
11 UNION BANK UNIONBANK 1
12 YES BANK YESBANK 1.9
1.177
It is seen from Table 3.46 that the spread for the banks which form the Bank Index
ranges from 0.11 to1.95. The spread for Canara Bank is lowest at 0.11 and the spread is
highest for Kotak Mahindra Bank. It is also seen that the spread for all these banks are very
low, below 2. This is an indication of good performance in the NSE. . The index forming
banks have performed well in the trading of NSE. Table 3.47 shows the descriptive statistics
for spread of companies forming the CNX Bank index.
TABLE 3.47
Descriptive Statistics for spread of companies forming the CNX Bank Index

Index forming companies 12 1.177 .69968 .20198
Non index forming companies 27 1.811 1.63720 .31508
Total 39 1.615 1.41834 .22712
It is found from Table 3.47 that the number of index forming companies is 12 whereas
the number of non index forming companies is 27. It is also noted that the overall mean
spread is 1.615. The Table shows that the mean spread of index forming and non index
forming companies are 1.177 and 1.811 respectively. To gain a deeper understanding about
the performance of the banks a comparison is made with the other banks which do not form

the index. One way analysis of variance is used here. The null hypothesis is formulated as
such:
H0: There is no significant difference in spread among the CNX Bank index forming
companies and the non index forming companies.
TABLE 3.48
ANOVA test for spread of companies forming CNX Bank Index
Sum of
df Mean Square F Sig. Result
Squares
Total 76.444 38
Sig Significant
. The application of one-wayanalysis test clearly revealed that there is a significant

difference in the spread values of index and non index companies because the p value is
0.047 and F value is 3.674. The null hypothesis is accepted. Thisshows a difference between
the index forming and non index forming companies.
3.4.2.3 CNX Energy index
The Energy Sector is considered as one of the most significant inputs for economic
growth. India being one of the fastest growing economies, it has also become one of the
largest energy intensive countries in the world. Energy is an important input for Indias
development. The CNX Energy Index is developed to capture the performance of the
companies in this sector. CNX Energy Index includes companies belonging to Petroleum,
Gas and Power sectors. The index comprises of 10 companies listed on NSE. CNX Energy
index is computed using free float market capitalization method, wherein the level of the
index reflects the total free float market value of all the stocks in the index relative to
particular base market capitalization value. CNX Energy Index can be used for a variety of
purposes such as benchmarking fund portfolios, launching of index funds, Exchange Traded
Funds and Structured products. The CNX Energy Index has a base date of January 1, 2001
and a base value of 1000. The CNX Energy Index represents about 10.39% of free float
market capitalization of the stocks listed on NSE and 84.44% of the free float market

capitalization of the stocks forming part of the Energy sector universe as on December 31,
2012. The total traded value for the last six months ending December 2012 of all index
constituents is approximately 6.43% of the traded value of all stocks on NSE and 67.78% of
the traded value of the stocks forming part of the Energy sector universe. The microstructure
of the Energy based companies are found by computing the bid ask spread for these
companies. Enclosed in Table 3.49 is the list of companies forming the Energy index and
their spread.
TABLE 3.49
List of companies forming the CNX Energy Index
S.No Name of the Company NSE symbol Spread
1 Bharat Petroleum Corporation BPCL 1.1
2 Limited CAIRN 1.2
3 Cairn India Limited GAIL 1.7
4 GAIL (India ) Limited IOC 1.3
5 Indian Oil Corporation Limited NTPC 0.78
6 NTPC limited ONGC 0.46
7 Oil & Natural Gas Corporation POWERGRID 0.9
8 Limited RELIANCE 1.8
9 Power Grid Corporation of India RPOWER 1.22
10 Reliance Industries Limited TATAPOWER 0.67
Reliance Power limited
Tata Power Company Limited 1.113
One of the most efficient indices on the NSE is the energy index, as the spread for the
index forming company is below 1.8. Table 3.49 shows that the average spread is 1.113 and
the spread ranges from 0.46(forONGC) to 1.8(forReliance Industries). Six out of the ten
energy index forming companies are public sector undertaking. The performances of the
PSUs are very good, indicating a low spread. The overall performance of the energy index is
remarkable. Table3.50 gives the descriptive statistics for spread for index forming and non
index forming companies with the standard deviation.
TABLE 3.50
Descriptive statistics for spread of companies forming the CNX Energy Index
Standard Standard
Particulars N Mean
Deviation Error

Total 42 1.293 3.76112 .58035
Table 3.50 indicates that the mean spread for index forming companies is 1.113 whereas the
spread for non-index forming companies is 1.35. The performance of index forming
companies is better than the non index forming companies. The standard deviation too is very
low for the index forming companies, indicating very low fluctuations in this index.
To find if there are any differences between the index forming and the non index
forming companies, one-wayANOVA test is used and the following results obtained and
presented in Table 3.51. the null hypothesis under this condition is as such:
H0: There is no significant difference in spread between the CNX energy index
forming companies and the other companies which does not form the index.
TABLE 3.51
ANOVA test for spread of companies forming the CNX Energy Index
Sum of Mean
Particulars df F Sig.
Squares Square Result
Within Groups 559.118 40 13.978
Total 579.987 41
Sig Not Significant
Table 3.51 indicates that since the F value of 4.493 and p value of 0.039 are statistically
significant at 5% level, the null hypothesis is rejected. There is a difference between index
forming and non index forming companies.
3.4.2.4 CNX Finance Index

The CNX Finance Index is designed to reflect the behavior and performance of the
Indian financial markets which includes Banks, Financial Institutions and Housing Finance
and other Financial Services companies. The CNX finance index comprises of 15 stocks that
are listed on the NSE. The CNX Finance index is computed using free market capitalization
method with a base date of January 1, 2004 indexed to a base value of 1000. Important
corporate actions like stock splits, rights issues, new issues of shares are taken into account.
The CNX Finance Index represents about 20.65% of the free float market capitalization of
the stocks listed on the NSE and 76.73% of the free float market capitalization of the stocks

forming part of the Finance sector universe as on December 31, 2012. The total traded value
for the last six months ending December 2012 of all index constituents is approximately
18.3% of the traded value of all stocks on the NSE and 71.46% of the traded value of the
stocks forming part of the finance sector universe. The microstructure of the finance based
companies are found by computing the bid ask spread. The list of 15 companies forming the
index and the spread value is given in Table 3.52.
TABLE 3.52
List of companies forming the CNX Finance Index
S.No Name of the company NSE symbol Spread
1 Axis Bank Limited AXISBANK 1.5
2 Bajaj Finserv Limited BAJAJFINSV 1.1
3 HDFC Bank Limited HDFCBANK 0.24
4 Housing Development Finance Corporation HDFC 1.5
5 ICICI Bank Limited ICICIBANK 1.4
6 IDFC Limited IDFC 1.2
7 Kotak Mahindra Bank Limited KOTAKBANK 1.95
8 LIC Housing finance Limited LICHSGFIN 0.93
9 Mahindra & Mahindra Financial Services M&MFIN 1.45
10 Power Finance Corporation Limited PFC 1.8
11 Punjab National Bank PNB 1.5
12 Reliance Capital Limited RELCAPITAL 0.923
13 Rural Electrification Corporation Limited RECLTD 1
14 Shriram Transport Finance Company Limited SRTRANSFIN 7.67
15 State Bank of India SBIN 1.65
1.72
From Table 3.52, it is found that the spread ranges from 0.24 (for HDFC Bank) to 7.67 ( for
Shriram Transport Finance company Ltd). The mean spread is 1.720. Spread is very low for
all companies except for Shriram Transport Finance Company. The spread for both banks and
non banking financial institutions are below 2, which is an indication of good performance of
this index. But Shriram Transport Finance Company had an extraordinarily high spread of
above 7. This is a very rare case, indicating very high fluctuations in the market. It is because
of this company that the mean spread is quite high. Table 3.53 gives the descriptive statistics
for spread values for the index forming and non index forming companies.
TABLE 3.53

Descriptive Statistics for spread of companies forming the Finance Index
Standard Standard
Particulars N Mean
Deviation Error
Index forming companies 15 1.720 1.59470 .41175
Total 113 1.87 6.43183 .60506
. Table 3.53 reveals that the mean spread for index forming companies is 1.720, while
for the non index forming companies, the value is 1.893. So the index forming companies
have performed better than the non index forming companies. Though the spread was very
high for Shriram Transport Finance Company, the mean spread is just 1.72. This result is
surprising. The mean spread for non index forming companies is 1.893, showing that the
index forming companies are better performers than non index forming companies. In order
to find the inter-relationship of mean spread among the CNX Finance index forming
companies with the other companies one way analysis is applied. In this regard the null
hypothesis is developed as such
H0: There is no significant difference in mean spread among CNX finance and non
index forming companies.
The results are supported by using analysis of variance tests and givenin Table 3.54.
TABLE 3.54
ANOVA test for spread of companies forming the CNX Finance Index
Mean
Particulars Sum of Squares Df F Sig. Result
Square
Between Groups 7.194 57 .126 5.194 .025 Sig
Within Groups 5.815 55 .106
Total 13.009 112
Sig Significant
Table3.54 shows that since the F value of 5.194 and p value of 0.025 are statistically
significant at 5% level, the null hypothesis is rejected. There is a difference between index
forming and non index forming companies. The performance of the index forming

companies are different from the performance (measured by spread) of non index forming
companies, the former better than the latter.
3.4.2.5CNX FMCGIndex
Fast Moving Consumer goods are those goods and products, which are non- durable,
mass consumption products and available off the shelf. The CNX FMCG Index comprises of
5 companies who manufacture such products which are listed on the NSE. The index is
computed using free float market capitalization method with the base period as December
1995, index to a base value of 1000 wherein the level of index reflects total free float market
value of all stocks in the index relative to a particular base market capitalization value. The
CNX FMCG Index represents about 10.28% of the free float market capitalization of the
stocks listed on the NSE and 92.87% of the free float market capitalization of the stocks
forming part of the FMCG universe as on December 31, 2012. The total traded value for the
last six months ending December 2012 of all index constituents is approximately 4.41% of
the traded value of all stocks listed on the NSE and 88.55% of the traded value of the stocks
forming part of the FMCG universe. The microstructure of the FMCG based companies are
found by computing the bid ask spread. The list of 15 companies forming the FMCG Index
and their spread value is enclosed in Table 3.55.
TABLE 3.55
List of companies forming the CNX FMCG Index

1. Britannia Industries Limited BRITANNIA 1.6
2. Colgate Palmolive (India) Limited COLPAL 1.54
3. Dabur India Limited DABUR 1.4
4. EID Parry India Limited EIDPARRY 2.1
5. Emami Limited EMAMILTD 1.54
6. Godrej Consumer Products Limited GODREJCP 1.6
7. GlaxoSmithKline Consumer Products Ltd GSKCONS 1.7
8. Hindustan Unilever Limited HINDUNILVR 0.6
9. ITC Limited ITC 1.8
10. Jubilant Foodworks Limited JUBLFOOD 1.5
11. Marico Limited MARICO 1.1
12. United Spirits Limited MCDOWELL-N 5.1
13. McLeod Russell India Limited MCLEODRUSS 1.43
14. Tata Coffee Limited TATACOFFEE 1.1
15. United Breweries Limited UBL 0.34
1.63
It is seen from Table 3.55 that spread ranges from 0.34 (for United Breweries Ltd) to 5.1
(United Spirits Ltd) and the mean spread is 1.63. In case of FMCG too, the spread for all
companies are very low except for McDowell. This company has a high spread. The reasons
may be that due to poor financial performance, the trading on this company was low. The
spread is below 2 for all other companies. A comparison is made between the index forming
and non- index forming companies and the results are presented in Table 3.56
TABLE 3.56
Descriptive Statistics for spread of companies forming the CNX FMCG Index

Total 69 1.65 4.58610 .55210
The results supported from the spread of these two categories are given in Table 3.56.
It is found that the spread for index forming companies is 1.62 whereas the spread for non
index forming companies is 1.67. Thedifference in spread is very low. The performance of
the index forming and the non index forming companies are not different from each other.
One-way analysis of variance test is used to verify the results and given in Table 3.57

TABLE 3.57
ANOVA test for spread of companies forming CNX FMCG Index

Within Groups 1427.779 67 21.310
Total 1430.197 68
N.S Not Significant
Table 3.57 shows thatsince the F value of 0.113 and the p value of 0.737 are
statistically insignificant at 5% level, the null hypothesis is accepted. So it is inferred that
there is no difference between the index forming and non index forming companies.
3.4.2.6CNX IT Index
Information Technology (IT) industry has played a major role in the Indian economy
during the last five years. A large number of profitable, Indian companies today belong to the
IT sector and a great deal of investment interest is now focused on the IT sector. In order to
have a good benchmark of the Indian IT sector, IISL has developed the CNX IT sector index.
CNX IT provides investors and market intermediaries with an appropriate benchmark that
captures the performance of the IT segment of the market. Companies in this index are those
that have more than 50% of their turnover from IT related activities like IT Infrastructure, IT
Education and Software Training, Telecommunication Services and Networking
Infrastructure, software Development, Hardware Manufacturers Vending, Support and
Maintenance. The CNX IT index is computed using free float market capitalization method
with a base date of January 1, 1996, indexed to a base value of 1000. The CNX IT represents
about 8.58% of the free float market capitalization value of all stocks listed on the NSE and
93.97% of the free float market capitalization of the stocks forming part of the IT sector as on
December 31, 2012. The total trade d value for the last six months ending December 2012 of
all index constituents is approximately 3.28 % of the total traded value of all stocks on the
NSE and 88% of the traded value of the stocks forming part of the IT sector.The
microstructure of the Information Technology based companies are found by computing the
bid ask spread The list of Information Technology index forming companies and their spread
is given in Table 3.58.

TABLE 3.58
List of companies forming the CNX IT Index

1. CMC Ltd CMC 2.1
2. CORE Education and Technologies Ltd COREPROTEC 1
3. Educomp Solutions Ltd EDUCOMP 1.23
4. Financial Technologies (India) Ltd FINANTECH 1.2
5. HCL Technologies Ltd HCLTECH 1.23
6. Hexaware Technologies Ltd HEXAWARE 1.3
7. Info Edge (India) Ltd NAUKRI 1.1
8. Infosys Ltd INFOSYSTCH 1.6
9. KPIT Cummins Info System Ltd KPIT 0.62
10. MindTree Ltd MINDTREE 1.23
11. Mphasis Ltd MPHASIS 1.3
12. NIIT Technologies Ltd NIITTECH 1.6
13. Oracle Financial Services Software Ltd OFSS 1.1
14. Polaris Financial Technology Ltd POLARIS 1.2
15. Rolta India Ltd ROLTA 1.32
16. Tata Consultancy Services Ltd TCS 0.36
17. Tech Mahindra Ltd TECHM 1.5
18. Vakrangee Software Ltd VAKRANSOFT 1
19. Wipro Ltd WIPRO 1.9
20 eClerx Services Ltd ECLERX 1
From Table 3.58, it is found that spread ranges from 0.36 (for TCS) to 2.1( CMC
Ltd). The spread for all the index forming companies is below 2.2, which indicates that the
index forming companies are good performing companies. Compared to the other indices,
this index has the lowest spread for all the companies. Investors had high confidence in the
performance of the IT segment.The mean spread and the standard deviation of these two
entities are given in Table 3.59.
TABLE 3.59

Descriptive Statistics for spread of companies forming the CNX IT Index

INDEX FORMING 20 1.2445 .38997 .08720
NON INDEX FORMING 80 2.4107 5.61910 .62823
Total 100 1.9775 5.09737 .50974
From Table 3.59, it is found that the spread for index forming companies is 1.244. The spread
for non index forming companies is 2.41. The index forming companies have performed very
well compared to non index companies. The spread for the non-index forming companies is
almost twice that of the index forming companies. To compare the performance of index
forming companies with the non index forming companies, one-way analysis of variance test
is used and the results obtained are in presented in Table 3.60. In this regard, the null
hypothesis is formulated as:
H0 : Thereis no significant difference in mean spread among the index forming and non
index forming companies.
TABLE 3.60
ANOVA TEST for spread of companies forming the CNX IT Index

Within Groups 2497.256 98 25.482
Total 2572.339 99
N.S Not Significant
From Table3.60, it is found that since the F value of 2.946 and p value of 0.049 are
statistically significant at 5% level, the null hypothesis is rejected. There are differences
between index forming and non index forming companies. The index forming companies are
better performers in the stock exchanges and they deserve being placed in the index.
3.4.2.7 CNX Media Index
The CNX Media Index is designed to reflect the behavior and performance of the
Media and Entertainment sector including printing and publishing. The CNX Media Index is
computed using free float market capitalization method with a base date of December 30,
2005 indexed to a base value of 1000. The CNX Media index represents 91.04% of the free

float market capitalization of the stocks forming part of the Media and Entertainment
universe as on 31 December 2012. The total traded value for the last six months ending
December 2012 of all index constituents is approximately 85.57% of the traded value of the
stocks forming part of the Media and Entertainment universe. The list of companies forming
the Media and Entertainment index is given in Table 3.61.
TABLE 3.61
List of companies forming the CNX Media Index

1. D.B.Corp Limited DBCORP 1.21
2. Den Networks Limited DEN 1.27
3. Dish TV India Limited DISHTV 1.2
4. Entertainment Network (India) Limited ENIL 5.5
5. Cyber Media (India) Limited CYBERMEDIA 1.1
6. HT Media Limited HTMEDIA 1.45
7. Hathway Cable & Datacom Limited HATHWAY 1.4
8. Hinduja Ventures Limited HINDUJAVEN 2
9. Jagran Prakashan Limited JAGRAN 0.8
10. Navneet Publications India Limited NAVNETPUBL 1.4
11. Prime Focus Limited PFOCUS 2
12. Shree Ashtavinayak Cine Vision SHREEASHTA 0.4
13. Sun TV Network Limited SUNTV 1.54
14. TV18 Broadcast Limited TV-18 1
15. Zee Entertainment Enterprises Limited ZEEL 1.1
1.558
From Table 3.61, it is inferred that the mean spread for the CNX Media Index is
1.558. Spread ranges from 0.4 (for Shree Ashtavinayak Cine vision) to 5.5 (Entertainment
Network (India) Limited. The spread for the CNX Media index is also low which means that
there is lot of trading activities in the CNX Media Index. Except for ENIL, the spread for all
other companies are very low. A comparison is made between the spread values between the
index forming and non index forming companies. The results are given in Table 3.62.
TABLE 3.62
Descriptive Statistics for spread of companies forming the CNX Media Index


Total 50 1.937 3.67529 .51976
It is found from Table 3.62 that the spread for index forming company is 1.558 where
as the spread for non index forming company is 2.1. The standard deviation is low for the
index forming companies whereas it is high for the non index forming companies. A low
standard deviation indicates low fluctuations for the market price among the different
companies forming the index and vice versa. There are differences in spread values of index
forming and non index forming companies. This is further verified using the one-way
analysis of variances. The null hypothesis formulated is:
H0: Thereis no significant difference in the mean spread among the index forming and
non index forming companies.
The results of the ANOVA test is presented in Table 3.63.
TABLE 3.63
ANOVA TEST for spread of companies forming the Media Index
Mean
Square
Within Groups 657.971 48 13.708
Total 661.881 49
Sig Significant
From Table 3.63, it is found that since the F value of 5.285 and the p value of 0.046,
are statistically significant at 5% level, the null hypothesis is rejected. Therefore it is
concluded that there is a significant difference between the index forming media companies
and the non index forming companies.
3.4.2.8 CNX Metal Index

The CNX Metal Index so designed to reflect the behavior and performance of the
Metals Sector including mining. The CNX Metal Index is formed with 15 stocks that are
listed on the National Stock Exchange. CNX Metal Index is computed using free float market
capitalization method with base date of January 1, 2004 indexed to a base value of 1000,
wherein the level of the Indies reflects the total free float market value of all the stocks in the
index relative to particular base market capitalization value. The CNX Metal Index represents

about 4.17% of the free market capitalization of the stocks listed on the NSE and 73% of the
free float market capitalization of the stocks forming part of the Metals Universe as on
all index constituents is approximately 5.41% of the traded value of all stocks on NSE and
79.37% of the traded value of the stocks forming part of the Metals Universe. The
microstructure of the Metals based companies are found by computing the bid ask spread.
Given in Table 3.64 is the list of companies forming the Metal index and their spread.
TABLE 3.64
List of companies forming the CNX Metal Index
1. Adhunik Metaliks Limited ADHUNIK 1.4
2. Bhushan Steel Limited BHUSANSTL 3
3. Gujarat Mineral Development Corporation GMDCLTD 2.6
4. Hindalco Industries Limited HINDALCO 1.7
5. Hindustan Zinc Limited HINDZINC 1
6. Jindal Saw Limited JINDALSAW 1.5
7. Jindal Steel and Power Limited JINDALSTEL 1.7
8. JSW Steel Limited JSWSTEEL 1.2
9. Monnet Ispat and Energy Limited MONNETISPA 1
10. National Aluminium Company Limited NATIONALUM 1.12
11. OCL Iron and Steel Limited OISL 1.1
12. Steel Authority of India Limited SAIL 1.5
13. Sesa Goa Limited SESAGOA 1
14. Tata Steel Limited TATASTEEL 0.5
15. Welspun Gujarat Limited WELGUJ 1.34
1.44
It is inferred from Table 3.64 that spread ranges from 0.5 (for Tata Steel Limited) to 3
(for Bhushan Steel Limited). The range of spread in this index is high. Bhushan Steel Limited
has a very high spread compared to the other companies. This means that there were
fluctuations in the market price of Bhushan Steel Limited. The Market Price of this company
ranges from Rs. 1665.65 to 1743. Sesa Goa Limited has the next lowest spread of 1 which
indicates a very high trading frequency. OCL Iron and Steel Limited also have a very low
spread of 1.1. So the performance of this company (measured by spread) too is good. The
number of companies, the mean spread and the standard deviation is given in Table 3.65.
TABLE 3.65

Descriptive Statistics for spread of companies forming the CNX Metal Index

Total 73 1.517 5.88409 .68868
The CNX metal index is formed with 15 companies. It is found from Table 3.65 that
the mean spread for index forming companies is 1.444 whereas the spread for non index
forming company is 1.91. The difference in spread among these two categories is not very
high. A comparison is made between the index forming companies and non index forming
companies One-way analysis of variance is used to test the level of significance. In this
regard, the null hypothesis is given by
H0: There is no significant difference in mean spread among the metal index forming
companies and the other companies which do not form the index.
Table 3.66 shows that results of the ANOVA test.
TABLE 3.66
ANOVA test forspread of companies forming the CNX Metal Index
Particulars Sum of Squares df Mean Square F Sig. Results

Within Groups 2491.620 71 35.093
Total 2492.817 72
N.S- Not Significant
Table 3.66 reveals that since the F value of 0.34 and the p value of 0.854 are
statistically insignificant at 5% level, the null hypothesis is accepted. There is no considerable
difference between the spread of index forming companies and non index forming
companies. The performance of index forming companies does not influence the performance
of non index forming companies.

3.4.2.9 CNXPharmaceutical Index
Pharmaceuticals sector is one of the key sectors other than software, where Indian
companies have created global brand for themselves. The Indian pharmaceutical companies
have taken advantage of the opportunities in the regulated generics market in the western
counties and have created a landmark in providing low cost equivalents of expensive drugs.
Pharmaceutical outsourcing into India and low cost healthcare services are expected to be the
key areas of growth in the near future. In addition, the inherent biotechnology has also
attracted many new companies and this is also a key growth area for Indian companies. IISL
has developed CNX Pharma Index to capture the performance of the companies in this sector.
The base date for the CNX Pharma index is taken as January 1, 2001 and the base value of
1000. The CNX Pharma index represents about 4.44% of the free float market capitalization
of the stocks listed on the NSE and 77.02% of the free float market capitalization of all the
stocks forming part of the Pharmaceutical sector universe as on December 31, 2012. The total
traded value for the last six months ending December 2012 of all the index constituents is
approximately 3.17% of the traded value of all stocks on NSE and 62.87% of the traded value
of the stocks forming part of the pharmaceutical sector universe. The microstructure of the
Pharmaceutical based companies are found by computing the bid ask spread. The list of
companies forming the Pharmaceutical Index and the spread values are given in Table 3.67.
TABLE 3.67
List of companies formingCNX Pharmaceutical index

1. Cadila Healthcare Limited CADILAHC 2
2. Cipla Limited CIPLA 0.5
3. Divis Laboratories Limited DIVISLAB 2.3
4. Dr. Reddys Laboratories Limited DRREDDY 0.47
5. GlaxoSmithKline Pharmaceuticals GLAXO 0.45
6. Limited GLENMARK 1
7. Glenmark Pharmaceuticals Limited LUPIN 1.7
8. Lupin Limited PIRHEALTH 2.1
9. Piramal Enterprises Limited RANBAXY 1
10. Ranbaxy Laboratories Limited SUNPHARMA 1.1
Sun Pharmaceuticals Industries Limited.

1.26
Table3.67 represents the spread for the 10 index forming pharmaceutical companies.
The spread ranges from 0.45 for Glaxo SmithKline to2.3 (for Divis Laboratories) and the
mean spread is 1.26. The overall performance of the CNX Pharma Index is good as the
spread values are low, except for Divis Laboratories, where the spread is 2.3. The
performance of the Pharmaceutical industry is one of the best performing industry.The
number of companies in each category, the mean spread and the standard deviation are given
in Table 3.68.
TABLE 3.68
Descriptive Statistics for spread of companies forming the CNX Pharmaceutical Index

Total 74 1.478 3.03422 .35272
There are 10 companies forming the CNX Pharma Index and the non index forming
companies are 64 in number. It is known from Table 3.68 that the average spread for index
forming companies is 1.262 whereas for non index forming companies, the spread is 1.512,
which indicates that there is not much difference between the performances of the two
segments. The standard deviation for the index forming company is much lower than the
standard deviation for the non index forming company. This indicates that the difference in
spread isminimum for the index forming companies whereas the difference in spread for the
non index forming companies is very high.
The performance of these two segments is studied using one-way analysis of variance
test. The results are given in Table 3.69.In regard to the analysis, the null hypothesis is
formulated as
H0: There is no significant difference in mean spread among Pharmaceutical index

forming companies and companies which do not form the index.
TABLE 3.69

ANOVA test for spread of companies forming the CNX Pharmaceutical Index
Particulars Sum of Squares Df Mean Square F Sig. Result

Total 672.074 73
N.S - Not Significant
. The results of ANOVA test given in Table 3.69 prove that there is no significant
difference between index forming and non index forming companies, since the F value of
0.173 and p value of 0.679 are not significant at 5% level. That is the null hypothesis is
accepted.
3.4.2.10 CNX PSU Bank Index
The Indian banking system, reaping the benefits of a strong credit off take and
improved risk management practices, has continued to report the increase in earnings over the
last five years, while improving on the solvency profile substantially. The emergence of the
rural middle class segment and creation of many jobs in the last five years have provided a
large market for banks. To cater the needs of potential customers, public sector banks have
taken various initiatives to improve their core fee income over the last few years. The
profitability of the public sector banks continue to rise. PSU Banks account for 70.3% in
terms of total assets held for 2006-07 along with the total business shares amounting to 73%
for 2006-07. CNX PSU Bank Index is computed using free float market capitalization
weighted method with the base date of January 1, 2004 indexed to the base value of 1000.
This index represents about 4.42% of the free float market capitalization of the stocks listed
on the NSE and 91.74% of the free float market capitalization of the stocks forming part of
the PSU Banks sector Universe as on December 31, 2012. The total traded value for the last
six months ending December 2012 of all index constituents is approximately 7.24% of the
traded value of all stocks on the NSE and 42.28% of the traded value of the stocks forming
part of the Banking universe. The microstructure of the index forming banks and the non
index forming banks are found by computing the bid ask spread. The list of companies
forming the PSU Bank Index is given in Table 3.70, along with the spread.
TABLE 3.70
List of companies forming the CNX Bank Index

1. Allahabad Bank ALBK 1.56
2. Andhra Bank ANDHRABANK 1.55
3. Bank of Baroda BANKBARODA 0.34
4. Bank of India BANKINDIA 1
5. Canara Bank CANBK 0.11
6. Indian Overseas Bank IOB 1.5
7. IDBI Bank Limited IDBI 1.3
8. Oriental Bank of Commerce ORIENTBANK 1.4
9. Punjab National Bank PNB 1.5
10. State Bank of India SBIN 1.05
11. Syndicate Bank SYNDIBANK 1
12. Union Bank of India UNIONBANK 1
1.109
From Table 3.70, it is inferred that the spread for the CNX PSU Bank Index ranges
from 0.11 (for Canara Bank) to 1.56 (for Allahabad Bank). The mean spread for the PSU
banks is 1.109. This is the sector with the lowest spread. All the PSU banks in the index have
performed very well. This is seen from their spread values. For all the banks in the index, the
spread is below 1.57. The number of companies, their mean spread and the standard deviation
TABLE 3.71
Descriptive Statistics for spread of companies forming the CNX PSU Bank Index

Total 20 1.45 1.79519 .40142
From Table 3.71, it is seen that for the index forming company the spread is 1.109
which is very low compared to the non index forming company whose spread is 1.9. There
are 8 non index forming companies and 12 index forming companies. The standard deviation
for the index forming companies is at a very low level at 0.44 which means there is not much

deviations from the mean spread. The non index forming companies have a high standard
deviation of 2.63, indicating high fluctuations in the spread for companies.
To compare the performance of the PSU banks forming the index with that of the non
index forming banks, one-wayanalysis of variance test is used. In this context, the null
hypothesis is formulated as
H0 : There is no significant difference in the mean spread between the index forming
and non index forming companies.
The results are shown in Table 3.72.
TABLE 3.72
ANOVA TEST for spread of companies forming CNX PSU Bank Index

Total 61.231 19
Sig. - Significant
Table 3.72 shows that since the f value of 3.737 and p value of 0.039. are statistically
significant at 5 % level, the null hypothesis is rejected. It is concluded that there is difference
between the index forming and non index forming companies. The Public Sector Banks,
which form the index, have performed better than the other Public Sector.
3.4.2.11 CNX Realty Index
Real Estate Sector in India is witnessing drastic growth. The reason for such growth
is the increase in purchasing power of customers, existence of customer friendly banks and
Housing finance companies, favorable reforms initiated by the government to attract global
investors and favorable tax policies for investment made in the realty sector. The CNX Realty
Index is computed using free float market capitalization weighted method with base value on
December 29,2006 and base value 1000. CNX Realty Index represents about 0.89% of the
free float market capitalization of stocks listed on NSE and 38.66% of the free float market

capitalization of the stocks forming the Realty sector universe as on December 31, 2012. The
total traded value for the last six months ending December 2012 of all Index constituents is
approximately 4.07% of the traded value of all stocks on the NSE and 52.30% of the traded
value of the stocks forming part of the Realty sector Universe. The microstructure of the
Realty based companies are found by computing the bid ask spread Listedin Table 3.73 are
the 10 realty sector companies forming the Realty index and their spread.
TABLE 3.73
List of companies forming the CNX Realty Index
1. Anant Raj Limited ANANTRAJ 1.1
2. D B Realty Limited DBREALTY 1.3
3. DLF Limited DLF 3
4. Godrej Properties Limited GODREJPROP 1.4
5. Housing Development and Infrastructure Limited HDIL 1.23
6. Indiabulls Real Estate Limited IBREALEST 1.1
7. Jaiprakash Associates Limited JPASSOCIAT 1
8. Parsvanth Developers Limited PARSVANTH 1
9. Sobha Developers limited SOBHA 2.1
10. Unitech Limited UNITECH 1.5
1.473
Table 3.73 indicates that the spread ranges from 1 (for Jaiprakash Associates and
Parsvanth DevelopersLimited ) to 3 (for DLF Limited). The mean spread is 1.473.Among all
indices, the CNX Realty Index are one of the good performing indices. This index consists of
10 companies. The number of companies, the mean spread and the standard deviation of this
index are given in Table 3.74.
TABLE 3.74

Descriptive Statistics for spread of companies forming the CNX Realty Index

Total 92 1.82 2.84313 .29642
From Table 3.74, it is found that the spread for index forming companies is 1.473 and
for non index forming companies is 1.87. There is difference between index forming and non
index forming companies. The standard deviation is very low compared to the non index
forming companies. The variations among the non index forming companies are very high.
Index forming companies are better performers than the non index forming companies. These
results are further verified using one way analysis of variance tests and given in Table 3.75.In
this context, the null hypothesis is formulated and given as:
H0: There is no significant difference between the mean spread of index forming and
non index forming companies.
The resultsof analysis of variance are presented in Table 3.75.
TABLE 3.75
ANOVA test for spread of companies forming the for CNX Realty Index
Sum of Mean
Squares Square
Total 735.589 91
Sig. - Significant
Table3.75 indicates that since the F value of 1.696 and p value of 0.44 are
statistically significant at 5% leve, the null hypothesis is rejected. There is a difference in
performance (measured by spread) between index forming and non index forming companies.
Index forming companies have performed better than the other companies.
3.4.3 THEMATIC INDICES

Thematic indices are based on the themes of the companies. For each theme like
Infrastructure, all the industries include in the list are given here. The following are the
thematic indices at the NSE.
CNX Commodity Index

CNX Consumption Index
CNX Infrastructure Index
CNX Public Sector Enterprises Index
CNX Service Sector Index
3.4.3.1CNX Commodity Index
The companies representing the commodities segments form the CNX Commodity
Index. The index is calculated using free floatation capitalization methodology with a base
date of January 1, 2004, indexed to a base value of 1000. Commodity index consists of all
top performing companies in the commodity sector, in terms of market capitalization and
liquidity. Companies belonging to different commodities are included here. The CNX
commodities index represents about 17% of the free float market capitalization of the stock
listed on the NSE and around 80% of the free float market capitalization of the stocks
forming part of the Commodities segment universe as on December 31, 2012. The total
traded value for the last six months ending December 2012 of all index constituents is
approximately 14.20% of the traded value of all stocks on the NSE and 78.38% of the total
traded value of the stocks forming part of the commodities segment universe. The
microstructure of the commodity based companies are found by computing the bid ask
spread. The list of companies forming the commodity index and their spread is given in
Table 3.76.
TABLE 3.76
List of companies forming the commodity index
S.No Name of the company NSE Symbol Spread

1. Associated Cement Company Ltd ACC 1.6
2. Ambuja Cement AMBUJACEM 1.1
3. Bharat Petroleum Corporation Ltd BPCL 1.1
4. CAIRN India Ltd CAIRN 1.2
5. Grasim Industries GRASIM 1.5
6. Hindalco HINDALCO 1.7
7. Hindustan Petro Ltd HINDPETRO| 0.67

8. Jindal Steel Ltd JINDALSTEL 1.7
9. JSW Energy Ltd JSWENERGY 1.2
10. JSW Steel Ltd JSWSTEEL 1.2
11. National Aluminum Company Ltd NATIONALUM 1.12
12. NHPC Ltd NHPC 1.1
13. NTPC NTPC 0.78
14. Oil India Limited OIL 1.3
15. ONGC ONGC 0.46
16. Power Grid Corporation Ltd POWERGRID| 0.9
17. Reliance Iindustries Ltd RELIANCE 1.8
18. Reliance Infrastructure Ltd RELINFRA 1.7
19. Shree Renuka Sugars Ltd RENUKA 1.45
20. Reliance Power RPOWER 1.22
21. SAIL SAIL 1.5
22. Sesagoa SESAGOA 1
23. Shree Cement Ltd SHREECEM 1
24. Sterlite Industries STER 1.5
25. Tata Chemicals TATACHEM 1
26. Tata Power TATAPOWER| 0.67
27. Tata Steel Ltd TATASTEEL 0.5
28. Tornt Power Ltd TORNTPOWER 2.5
29. Ultratech Cement Corporation Ltd ULTRACEMCO 1.2
30. United Phosphorus Ltd. UNIPHOS 1.2
1.229
It is observed from Table 3.76 that Commodity index is formed by thirty companies
belonging to commodity sector. This sector includes power, chemicals, steel, sugar, cement,
infrastructure, crude oil refineries and aluminium industries. The non index forming
companies includes all the other companies belonging to the industries mentioned. The
average spread for index forming companies is 1.229, and that of the non- index forming
companies it is 2.02. Spread ranges from 0.46 (for ONGC Limited) to 2.5 (for Tornt Power
limited). The range here is very high. All other companies except Oil India Limited and
National Aluminium Company Limited, the spread is below 3.5. This is an indication that the
commodity index is performing very well. The index shows a high value because a few
companies have a high spread. There are 192 companies which belong to the industries of the
index forming companies. The number of companies, the mean spread and the standard
deviation are given in Table3.77.

TABLE 3.77
Descriptive statistics for spread of companies forming Commodity Index.

Total 222 1.913 7.52299 .50378
From Table 3.77, it is found that the mean spread for the index forming companies is
1.229 and that for the non index forming companies, the spread is 2.02. The index forming
companies are better performing companies with lower spread and hence they are more liquid
than the non index forming companies. The standard deviation is 3.73 for the index forming
company and 7.95 for the non index forming company. The range of spread is quite high for
the index forming companies and very high for the non index forming companies. The
commodity index is formed with top performing companies of eight industries. This could be
the reason for a high standard deviation. The results presented in Table 3.77 are verified
using one-way analysis of variance test, and are given in Table 3.78. The null hypothesis is
formulated as
H0: There is no significant difference of mean spread among the index forming and
non index forming companies belonging to the commodity sector.
The results of the analysis of variance are presented in Table 3.78
TABLE 3.78
ANOVA test for spread of companies forming the Commodity Index.

Within Groups 12552.358 221 56.798
Total 12564.189 222
Sig. - Significant
One-wayanalysis of variance test is applied to find the significant difference between

index forming companies and non index forming companies. It is found from Table 3.78 that

the F value of 0.208 and p value of 0.049 are statistically significant at 5% level, the null
hypothesis is rejected. So it is concluded that there is a significant difference between
performance of the index forming and non index forming companies. The performance
(measures by spread) of the index forming companies is different from the non index
companies belonging to these industries.
3.4.3.2 CNX Consumption index
The CNX Consumption Index is designed to reflect the behavior and performance of
a diversified portfolio of companies representing the domestic consumption sector which
includes sectors like Consumer Non- durables, Healthcare, Auto, Telecom Services,
Pharmaceuticals, Media & Entertainment, and Hotels. This index consists of all top
performing consumption companies in the NSE. This index is formed with 30 companies.
The index is calculated using free float market capitalization methodology with a base date of
January 2, 2006 and indexed to a base value of 1000. At the time of rebalancing of shares/
changes in index constituents/ change in Investible Weight Factor (IWF), the weight age of
the index constituents is capped at 8%. Weight age of such stock may increase up to a
maximum of 10% between the rebalancing periods. The CNX Consumption Index represents
about 18.91 % of the free float market capitalization of the stocks listed on the NSE and
67.98% of the free float market capitalization of the stocks forming part of the consumption
sector universe as on December 31, 2012. The total traded value for the last six months
ending December 2012 of all the index constituents is approximately 9% of the traded value
of all stocks on the NSE and 66.47% of the traded value of the stocks forming part of the
Consumption sector universe.The microstructure of the Consumption based companies are
found by computing the bid ask spread. The list of companies forming the consumption
index and their spread are given in Table 3.79.

TABLE 3.79
List of companies forming the Consumption Index

1 Apollo Hospitals and Enterprises Ltd APOLLOHOSP 1.1
2 Asian Paints Ltd ASIANPAINT 1.2
3 Bajaj Automobiles Ltd BAJAJ-AUTO 0.35
4 Bharti Airtel BHARTIARTL 0.25
5 Britannia Industries BRITANNIA 1.6
6 Colgate Palmolive (India) limited COLPAL 1.54
7 Dabur India Limited DABUR 1.4
8 GlaxoSmithKline Pharmaceuticals limited GLAXO 0.45
9 Godrej Consumer Products Limited GODREJCP 1.6
10 GlaxoSmithKline Consumer Healthcare Limited GSKCONS 1.7
11 Hero Honda Limited HEROHONDA 1.6
12 Hindustan Unilever Limited HINDUNILVR 0.6
13 Idea Cellular Limited IDEA 0.73
14 The Indian Hotel company Limited INDHOTEL 1.5
15 ITC Limited ITC 1.8
16 Jubilant Foodworks Limited JUBLFOOD 1.5
17 Mahindra and Mahindra Limited M&M 1.45
18 Marico Limited MARICO 1.1
19 Maruti Suzuki India Limited MARUTI 0.7
20 United spirits Limited MCDOWELL-N 5.1
21 Pantaloon Retail (India) Limited PANTALOONR 1.4
22 Reliance Communications Limited RCOM 1.6
23 Reliance Infrastructure Limited RELINFRA 1.7
24 Shree Renuka Sugars Limited RENUKA 1.45
25 Sun TV Network Limited SUNTV 1.54
26 Tata Power Company Limited TATAPOWER 0.67
27 Titan Industries Limited TITAN 1
28 Torrent Power Limited TORNTPOWER 2.5
29 United Breweries Limited UBL 0.34
30 Zee Entertainment Enterprises Limited ZEEL 1.1
1.352
It is understood from Table 3.79 that for the 30 companies forming the consumption
index, the average spread is 1.352 while that for the non index forming companies is 2.012.
Spread ranges from 0.25 (for Bharti Airtel) to 5.1 (for United Spirits Ltd). Except for Tornt

Power and United Spirits Limited, the spread is very low for the other companies. The
number of companies, the mean spread and the standard deviation are given in Table 3.80.
TABLE 3.80
Descriptive Statistics for spread of companies forming Consumption Index

Index forming companies 30 1.352 15.94331 2.91084
Total 138 1.868 7.90821 .67319
From Table 3.80, it is known that the spread for index forming company is 1.352
while the spread for non index forming companies it is 2.012. The performance of the index
forming companies is better than the non index forming companies. The index forming
companies have a very high standard deviation of 15.94. The index is formed with shares of
seven industries. This could be the reason for a high standard deviation. The standard
deviation for the non index forming companies is very low compared to the index forming
companies. This index is formed with 30 companies and the number of non index forming
companies is 108. So the number of companies comes to 138.
A comparison is made between the performance of the index forming and the non
index forming companies and the following conclusions are presented in Table 3.81. A one
way analysis of variance test is used here to find the differences. In this regard, the null
hypothesis is formulated as such:
H0: There is no significant differences between the means of index forming

companies and non index forming companies in the consumption sector.
TABLE 3.81
ANOVA testfor spread of companies forming the Consumption Index
Particulars Sum of Squares Df Mean Square F Sig. Result

Between Sig
420.289 1 420.289 7.015 .009
Groups
Within Groups 8147.660 136 59.909

Total 8567.949 137
Sig. - significant
From Table 3.81, it is found since the F value of 7.015 and p value of 0.009 are statistically
significant at 5% level, the null hypothesis is rejected. There is a difference between the
performances of the index forming and non- index forming companies. The index forming
companies are better performers than the non index forming companies.
3.4.3.3CNX INFRASTRUCUTRE INDEX
The quality of the infrastructure is one of the most important issues for a high and
sustained growth. Infrastructure has been a primary focus area for the government and during
presentation of budgets, the Finance Minister focuses on providing more funds for the
development of infrastructure. This is one of the areas where private investment is
encouraged. Earlier, the emphasis was on bringing in more and more projects, now the
emphasis also includes encouraging financial products suited for infrastructure. CNX
Infrastructure index includes companies belonging to Telecom, Power, Ports, Air Transport,
Roads, Railways, Shipping and other Utility Service providers. The CNX Infrastructure Index
has a base date of January 1, 2004 and a base value of 1000. The CNX infrastructure Index
represents about 9.65% of the free float market capitalization of the stocks listed on the NSE
and 74.44% of the free float market capitalization of the stocks forming part of the
Infrastructure sector universe as on 31 December 2012. The total traded value for the last six
months ending December 2012 of all index constituents is approximately 11.18% of the
traded value of all stocks on NSE and 60.03% of the total traded value of the stocks forming
part of the Infrastructure sector universe.The microstructure of the Infrastructure based
companies are found by computing the bid ask spread. Given in Table 3.82 is the list of 25
companies forming the CNX Infrastructure Index and their spread.
TABLE 3.82
List of companies belonging to the Infrastructure Index
S.No Name of the company NSE Symbol Spread

1. ABB Limited ABB 1.2
2. Adani Power Limited ADANIPOWER 1.88
3. Bharti Airtel Limited BHARTIARTL 0.25
4. Bharat Heavy Electricals Limited BHEL 1
5. Crompton Greaves Limited CROMPGREAV 1.6

6. GMR Infrastructure Limited GMRINFRA 1.5
7. Idea Cellular Limited IDEA 0.73
8. IRB Infrastructure Developers IRB 1.92
9. Limited IVRCLINFRA 1.5
10. IVRCL Limited JPASSOCIAT 1
11. Jaiprakash Associates Limited JPPOWER 1
12. Jaiprakash Power Ventures Limited JSWENERGY 1.2
13. JSW Energy Limited LT 1.5
14. Larsen & Toubro Limited NHPC 1.1
15. NHPC Limited NTPC 0.78
16. NTPC Limited POWERGRID 0.9
17. Power Grid Corporation of India PUNJLLOYD 1.2
18. Punj Lloyd Limited RCOM 1.6
19. Reliance Communications Limited RELINFRA 1.7
20. Reliance Infrastructure Limited RPOWER 1.22
21. Reliance Power Limited SIEMENS 1.76
22. Siemens Limited SUZLON 1.5
23. Suzlon Energy Limited TATACOMM 0.44
24. Tata Communications Limited TATAPOWER 0.67
25 Tata Power Company Limited VOLTAS 1
Voltas Limited 1.352
From Table 3.82it is understood that the spread ranges from 0.25 (for Bharti Airtel
Limited) to 1.92 (IRB Infrastructure Developers Limited). It is found that the mean spread is
1.352. Thespread for all the companies in this index are very low. This implies that all
companies forming this index have performed very well in the stock exchange. The number
of companies, the mean spread and the standard deviation are given in Table 3.83.
TABLE 3.83
Descriptives Statistics for spread of companies forming the Infrastructure Index

Total 218 1.869 3.00723 .20368
It is seen in Table 3.83 that the spread for the CNX Infrastructure Index is very low at
an average of 1.1692. This implies that the CNX Infrastructure Index is one of the best
performing industries. On comparison with the non index forming companies, it is

understood that the spread is 1.96, which again in not very low. This implies that the
Infrastructure companies are performing well and that the investors prefer trading in
infrastructure sector. The reason for the low spread of this segment could be the increase in
disposable income in hands of customers. Infrastructure is one of the fastest growing sectors
of our economy. The standard deviation for the index and non index forming companies are
low. The results are verified using one way analysis of variance and given in Table 3.84. In
this context, the null hypothesis is formulated as
H0: There is no significant difference in the mean spread of index forming and non
index forming companies belonging to the infrastructure sector
TABLE 3.84
ANOVA test for spread of companies forming Infrastructure Index

Within Groups 1936.130 216 8.964
Total 1962.423 217
Sig. Significant
From Table 3.84, It is seen that since the F value of 2.933 and the p value of 0.018
are statristically significant at 5% level, the null hypothesis is rejected. It is concluded that
there is significant difference between the index forming companies and the non index
forming companies.
3.4.3.4CNX PSE Index
The government, as a part of its agenda to reform the Public Sector Enterprises
(PSE), is disinvesting its Holdings in public sector enterprise since 1991. With a view to
provide regulators, investors and market intermediaries with an appropriate benchmark that
captures the performance of this segment of the market, as well as to make available an
appropriate basis for pricing forthcoming issues of PSEs, IISL has developed the CNX PSE
Index, comprising of 20 PSE stocks. The base period of this index is December 1994 and the
base value Rs.1000. The CNX PSE Index represents about 7.48 % of the free float market
capitalization of the stocks listed on NSE as on 31 December 2012. The total traded value for
the last six months ending December 2012 of all index constituents is approximately 2.74%
of the total traded value of all stocks of the NSE. The microstructure of all the companies

belonging to the Public Sector Enterprises sector are found by computing the bid ask spread.
Table3.85 represents the list of 20 Public Sector Index forming companies and their spread.
TABLE 3.85
List of companies forming the Public Sector Enterprises Index
1. Bharat Electronics limited BEL 1.2
2. Bharat Heavy Electricals Limited BHEL 1
3. Bharat Petroleum Corporation Limited BPCL 1.1
4. Container Corporation of India Limited CONCOR 1
5. Engineers India Limited ENGINERSIN 1.2
6. GAIL (India) Limited GAIL 1.7
7. Hindustan Petroleum Corporation Limited HINDPETRO 0.67
8. Indian Oil corporation Limited IOC 1.3
9. Mahanagar Telephone Nigam Limited MTNL 1.65
10. National Aluminium Company Limited NATIONALUM 1.12
11. NHPC Limited NHPC 1.1
12. NMDC Limited NMDC 1.23
13. NTPC Limited NTPC 0.78
14. Oil India Limited OIL 1.3
15. Oil and Natural Gas Corporation Limited ONGC 0.46
16. Power finance Corporation Limited PFC 1.8
17. Power Grid Corporation of India Limited POWERGRID 0.9
18. Rural Electrification Corporation Limited RECLTD 1
19. Steel Authority of India Limited SAIL 1.5
20. Shipping Corporation of India Limited SCI 1
1.505
From the twenty Public Sector Enterprises that are represented in Table 3.85, it is
found that spread ranges from 0.46 (for ONGC Ltd) to1.8(forPower Finance Corporation).
The mean spread is 1.505. The spread is very low for all the companies. The performance of
the Public Sector Enterprise is very remarkable. This could probably be the reason for calling

many of these companies as Navatratnas. The number of companies, the mean spread and
the standard deviation are given in Table 3.86.
TABLE3.86
Descriptive Statistics for spread of companies forming the PSE Index

index forming companies 20 1.505 1.30795 .29247
non index forming companies 27 1.68 1.66782 .32097
Total 47 1.60 1.51014 .22028
From Table 3.86, it is understood that the CNX PSE index is formed with 20 most
liquid Public Sector Enterprises. The mean spread for this sector is 1.505 and the standard
deviation is 1.307, with very little fluctuations in the spread for these companies. The spread
for the non index forming companies is slightly higher than the index forming company, and
has a slightly higher standard deviation. Here too, there are not many fluctuations in the mean
spread of companies.
A comparison is made between the index forming companies and non index forming
companies. One-wayanalysis if variance test is used to compare the performance of index
forming and non index forming companies. The results are given in Table 3.87. In this
context, the null hypothesis is formulated as:
H0: There is no significant difference in the mean spread among the index forming
and non index forming public sector enterprises.
TABLE 3.87
ANOVA test for spread of companies forming the CNX PSE Index
Particualrs Sum of Squares df Mean Square F Sig. Result

Between Groups .077 1 .077 1.033 .0456 Sig
Total 104.904 46
Sig. - Significant

Table 3.87 indicates that since the F value of1.033 and the p value of 0.0456 are not
statistically significant at 5 % level, the null hypothesis is rejected. There is a difference
between spread for the two categories. The performance of the index forming PSE is better
than the non index forming companies.
3.4.3.5CNX Service Index
The Indian economy has seen structural changes in the last couple of years.
According to the RBI data, the services sector remained the principal driver of the Indian
economy, contributing 55% of the growth of real GDP in 2006-07. The key driver for the
growth of the sector has been industries like IT, Banks, Tourism and Telecommunication. It
is also projected that that sector will grow manifold mainly due to Indias low cost advantage,
increasing demand for Customer services and the booming knowledge economy. The CNX
Servicessector Index is formed with 30 stocks which include software, education and
training, banks, telecommunication services, financial services media and courier industries.
The CNX Service sector Index in computed using free float market capitalization weighted
method with a base date of May 1999 and base value of 1000. The CNX Service Sector Index
represents about 33.97% of the free float market capitalization of the stocks listed on the NSE
and 78.51% of the free float market capitalization of the stocks forming part of the Service
sector universe as on 31 December 2012. The total traded value for the last six months ending
December 2012 of all index constituents is approximately 28.45% of the traded value of all
stocks on the NSE and 68.57% of the traded value of the stocks forming part of the Service
sector Universe. The microstructure of the Services based companies are found by computing
the bid ask spread. Table 3.88 presents the list of companies forming the CNX service index.
TABLE 3.88
List of companies forming the CNX Service Index

1. Axis Bank AXISBANK 1.5
2. Bank of Baroda BANKBARODA 0.34
3. Bank of India BANKINDIA 1
4. Bharti Airtel limited BHARTIARTL 0.25
5. Canara Bank CANBK 0.11
6. GAIL (India) Limited GAIL 1.7

7. HCL Technologies Limited HCLTECH 1.23
8. Housing Development Finance Corporation HDFC 1.5
9. HDFC Bank Limited HDFCBANK 0.24
10. ICICI Bank ICICIBANK 1.4
11. Idea Cellular Limited IDEA 0.73
12. IDFC Limited IDFC 1.2
13. The Indian Hotels Company Limited INDHOTEL 1.5
14. Indusind Bank Limited INDUSINDBK 1.54
15. Infosys Technologies Limited INFOSYSTCH 1.6
16. Kotak Mahindra Bank KOTAKBANK 1.95
17. NTPC Limited NTPC 0.78
18. Punjab National Bank PNB 1.5
19. Power Grid Corporation Limited POWERGRID 0.9
20. Reliance Communications Limited RCOM 1.6
21. Rural Electrification Corporation Limited RECLTD 1
22. Reliance Capital Limited RELCAPITAL 0.923
23. Reliance Infrastructure Limited RELINFRA 1.7
24. Reliance Power Limited RPOWER 1.22
25. State Bank of India SBIN 1.65
26. Shriram Transport Finance company SRTRANSFIN 7.67
27. Limited TATAPOWER 0.67
28. Tata Power Company Limited TCS 0.36
29. Tata Consultancy Services Limited WIPRO 1.9
30. Wipro Limited ZEEL 1.1
Zee Entertainment Enterprises Limited
Table 3.88 represents the spread for the 30 companies which form the CNX Service
Index. It is understood that the spread ranges from 0.11 (for Canara Bank ) to 7.67 (for
Shriram Transport finance Company Limited). The spread is low for all companies except for
Shriram Transport Finance Company where the spread is very high. The most liquid thirty
shares of the seven industries belonging to the services sector are included here. The number
of companies, their mean spread, and the standard deviation are given in Table 3.89.
TABLE 3.89

Descriptive Statistics for spread of companies forming the CNX Service Index

Total 214 1.669 4.60187 .31458
From Table 3.89, it is found that the spread for index forming companies is 1.358 and
for non index forming companies the spread is 1.721. The performance of the former is better
than the latter. The standard deviation for these 30 companies are very low at 1.22, whereas
the standard deviation for the remaining 184 non index forming companies is quite high at
4.91 indicating a wider range of spread for these companies. The mean spread for these 214
companies, - both the index forming and non index forming is 1.669. One Way analysis of
variance test is used to verify the results and presented in Table 3.90. The null hypothesis
formulated as
H0: There is no significant difference between the mean spread of index forming and
non index forming services sector companies.
TABLE 3.90
ANOVA test for spread of companies forming the CNX Service Index

Within Groups 4463.555 212 21.055
Total 4510.745 213
Sig Significant
statistically significant at 5% level, the null hypothesis is rejected. . There is difference
between index forming companies and non index forming companies. The performance of
the CNX Service Index companies is better than the performance of the non index
forming184 companies.
3.4.4 STRATEGY INDICES
Strategic indices are designed for special purposes. Index which cannot be placed
under these other categories is included here. The strategy index represents the special

characteristics of the share. The shares are classified either as a high risk shares or a high
return shares. High risk shares are thosewhosereturns fluctuate and the investors are not
assured of their returns. On the other hand, high return shares are thosewhose returns are
higher than the other shares. The former is called Alpha securities whereas the latter category
called the Beta securities. In this segment, a comparison is made between the Alpha shares
and the Beta shares.
3.4.4.1 Alpha index
The index aims to measure the performance of securities listed on the NSE with high
Alphas. In order to make the 50 stock index investible and replicable, a list of securities are
selected with criteria like the turnover, market capitalization, Market Price per Share. The
weights of securities in the index are assigned based on the alpha values. Security with the
highest alpha in the index gets highest weight. For the companies to get eligibility, for
following conditions must be fulfilled. Companies must rank within 300 companies by
average free float market capitalization and aggregate turnover for the last six months. The
company should have a listing history of 1 year. The company should have a trading
frequency of 100% in the last one year period. The company should have a positive net worth
as per the la test annual audited results. Alphas of eligible securities are calculated using 1
year trailing prices (Adjusted for corporate actions) are ranked in descending order. Top 50
securities with highest alphas form part of the index. In order to derive the alpha of the
security, the below mentioned method is used.
s = rs [ rf + (rm rf) ]
where,
rs Individual stock return
rf Mumbai Inter Bank Operating Rate
Beta of stock benchmarked to S&P CNX Nifty
rm Return of Benchmark Index
The review of the index is carried out on a quarterly basis. The index is constructed
using divisor methodology similar to IISL equity indices and theme based weighting
methodology where weights are assigned based on alpha values of the securities. At each
rebalancing of Alpha index, the weight (w) for each index constituent (i) is set proportional to
its alpha.

Using the divisor and modified index market capitalization, index value is calculated as
follows
1. Index Value = (Modified Index Market Capitalization / Index Divisor) * 1000

2. Modified Index Market Capitalization = (Modified Index Shares)i * Pricei
3. Modified Index Sharesi = (Weighti * Modified Index Market Capitalization on day)
/ Pricei
4. Modified Index Sharesi (on Base date) = (Weighti * Base Value) / Pricei
Rebalancing of the index is undertaken in the month of January, April, July and
October of each year. The review is carried out using data of six month period ending last
trading day of December, March, June and September of each year. The base date is
December 31, 2003, and a base value is 1000, for price index and for total return index. The
microstructure of the companies forming the Alpha index are found by computing the bid ask
spread. Given in Table 3.91is the list of companies forming the alpha index and their mean
spread?
TABLE 3.91
List of companies forming the Alpha Index
1. Amara Raja Batteries Limited AMARARAJA 1.6
2. Apollo Hospitals Enterprises Ltd APOLLOHOSP 1.1
3. Asian Paints Ltd ASIANPAINT 1.2
4. Aurobindo Pharma Limited AUROPHARMA 1.25
5. Bajaj Finance Ltd BAJFINANCE 1.5
6. Bajaj FinServ Ltd BAJAJFINSV 1.1
7. Berger Paints India Ltd BERGERPAINT 1
8. Den Networks Ltd DEN 1.27
9. Divis Laboratories ltd DIVISLAB 2.3
10. Essar Oil Ltd ESSAROIL 1.6
11. Federal Bank Ltd FEDERALBNK 1.2
12. Financial Technologies (India) Ltd FINANCTECH 1.2

13. Gitanjali Gems Ltd GITANJALI 1.2
14. Glenmark Pharmaceuticals Ltd GLENMARK 1
15. Godrej Consumer Products Ltd GODREJCP 1.6
16. Godrej Industries Ltd GODREJIND 1.1
17. HCL Technologies Ltd HCLTECH 1.23
18. Hathway Cable & Datacom Ltd HATHWAY 1.4
19. Havells India Ltd HAVELLS 2
20. ITCLtd ITC 1.8
21. ING Vysya Bank Ltd INGVYSYABK 1
22. Indusind Bank Ltd INDUSINDBANK 1.54
23. Ipca Laboratories Ltd IPCALAB 7.39
24. Jubilant Foodworks Ltd JUBLFOOD 1.5
25. KPIT Cummins Infosystem Ltd KPIT 0.62
26. Karnataka Bank Ltd KTKBANK 1
27. L&T Finance Holdings Ltd L&TFH 1.7
28. Lupin Ltd LUPIN 1.7
29. MRF Ltd MRF 1.2
30. Madras Cements Ltd MADRASCEM 1.12
31. Marico Ltd MARICO 1.1
32. Max India Ltd MAX 1.24
33. McLeod Russel India Ltd MCLEODRUSS 1.43
34. MindTree Ltd MINDTREE 1.23
35. GVKPIL GVKPIL 0.08
36. Prestige Estates Projects Ltd PROVOGUE 1
37. Shree Cement Ltd SHREECEM 1
38. Shriram City Union Finance Ltd SHRIRAMCIT 1.2
39. Sobha Developers Ltd SOBHA 2.1
40. Strides Arcolab Ltd STAR 1.2
41. Sun Pharmaceutical Industries ltd SUNPHARMA 1.1
42. Tata Coffee Ltd TATACOFFEE 1.1
43. Tech Mahindra ltd TECHM 1.5
44. Titan Industries Ltd TITAN 1
45. Ultratech Cement Ltd ULTRACEMCO 1.2

46. United Breweries Ltd UBL 0.34
47. United Spirits Ltd MCDOWELL-N 5.1
48. Wockhardt Ltd WOCHPHARMA 1.3
49. Yes Bank Ltd YESBANK 1.9
50. Zee Entertainment Enterprises Ltd. ZEEL 1.1
1.472
The spread of the 50 companies forming the Alpha index is analyzed and given in
Table 3.91. It is found from Table 3.91 that spread ranges from 0.08(for GVKPIL) to 7.39
(IPCA Laboratories). The average spread for the companies forming the Alpha index is
1.472Except for IPCA Laboratories and Divis Lab, whose spread is 2.3, all other companies
have a spread of 2 and below 2. This is an indication of good performance of the company.
3.4.4.2 High Beta Index
The CNX High Beta Index aims to measure the performance of the stocks listed on
the NSE that have High Beta. Beta is referred to as a measure of the sensitivity of stock
returns of stock returns to market returns. The market is represented by the performance of
the CNX Nifty. In order to make the 50 stock index investible and replicable, criteria like
turnover, free float market capitalization and Market Price per Share are considered. Weight
of securities in the index is assigned based on the beta values. Security with highest beta in
the index gets the highest weight. Beta of a security is calculated for each stock based on the
daily return over the past one year. The formula for calculating beta is as follows:
Beta (i ) = Cov (Ri, Rm)/ 2 m

Where,
Ri - Daily return of an individual security
Rm - Daily market return i.e. S&P CNX Nifty
Cov Covariance
2m - Variance of daily market returns
To be eligible for inclusion in the index, companies must rank within the top 300
companies by average free float market capitalization and aggregate turnover for the last six
months. The company should have a listing history of 1 year. The company should have an
investible weight factor (IWF) of at least 10%. The companys trading frequency should be
100% in the last one year period. The company should have a positive net worth as per the la
test annual audited results. Beta of eligible securities is calculated using 1 year trailing prices

(adjusted for corporate actions) are ranked in descending order. Top 50 securities with high
beta form part of the index. The securities having a beta of greater than 1 are selected to form
part of the index at each review. The reviews are done on a quarterly basis.The
microstructure of the companies forming the Beta index are found by computing the bid ask
spread.Given in Table 3.92 is the list of companies forming the beta index and their spread.
TABLE 3.92
List of companies forming the Beta index

1. Adani Enterprises Ltd ADANIENT 1.24
2. Adani Power Ltd ADANIPOWER 1.88
3. Anant Raj Ltd ANANTRAJ 1.1
4. Arvind Ltd ARVIND 1
5. Axis Bank Ltd AXISBANK 1.5
6. Century Textiles and Industries Ltd CENTURYTEX 2.3
7. DLF Ltd DLF 3
8. Delta Corp Ltd DELTACORP 1.03
9. Dena Bank DENABANK 1.1
10. GMR Infrastructure Ltd GMRINFRA 1.5
11. GVK Power and Infrastructure Ltd GVKPIL 0.08
12. Hindalco Industries Ltd HINDALCO 1.7
13. Housing Development and Infrastructure Ltd HDIL 1.23
14. ICICI Bank Ltd ICICIBANK 1.4
15. IDBI Bank Ltd IDBI 1.3
16. IDEA Cellular Ltd IDEA 0.73
17. IDFC Ltd IDFC 1.2
18. IFCI Ltd IFCI 1.45
19. IRB Infrastructure Developers Ltd IRB 1
20. IVRCL Ltd IVRCLINFRA 1.5
21. India Infoline Ltd INDIAINFO 1.5
22. Indiabulls Real Estate Ltd IBREALEST 1.1
23. Indusind Bank Ltd INDUSINDBK 1.54
24. JSW Energy Ltd JSWENERGY 1.2

25. JSW Steel Ltd JSWSTEL 1.2
26. Jaiprakash Associates Ltd JPASSOCIAT 1
27. Jindal Steel & Power Ltd JINDALSTEL 1.7
28. Lanco Infratech Ltd LITL 1.7
29. PTC India Ltd PTC 1.6
30. Pantaloon Retail (India) Ltd PANTALOONR 1.4
31. Power Finance Corporation Ltd PFC 1.8
32. Punj Lloyd Ltd PUNJLLOYD 1.2
33. Reliance Capital Ltd RELCAPITAL 0.923
34. Reliance Communications Ltd RCOM 1.6
35. Reliance Infrastructure Ltd RELINFRA 1.7
36. Reliance Power Ltd RPOWER 1.22
37. Rural Electrification Corporation Ltd RECLTD 1
38. Sesa Goa Ltd SESAGOA 1
39. Shree Renuka Sugars Ltd RENUKA 1.45
40. Sintex Industries Ltd SINTEX 1.1
41. Steel Authority of India Ltd SAIL 1.5
42. Suzlon Energy Ltd SUZLON 1.5
43. Syndicate Bank SYNDIBANK 1
44. TV18 Broadcast Ltd TV-18 1
45. Tata Motors Ltd TATAMOTORS 0.35
46. Tata Steel Ltd TATASTEEL 0.5
47. UCO Bank UCOBANK 0.3
48. Unitech Ltd UNITECH 1.5
49. Voltas Ltd VOLTAS 1
50. Yes Bank Ltd YEASBANK 1.9
1.294
For the fifty companies forming the Beta index the spread is analyzed.From Table 3.92,it is
found that spread ranges from 0.08 (for GVKPIL, which belong to Turnkey Services
industry) to 3 (for DLF, which belong to Construction and Infrastructure industry). The
volatility in this set of index forming companies is quite low. Compared to the high risk
companies, the spread is lower. The results are given in Table 3.93.

TABLE 3.93
Descriptive Statistics for companies forming the Alpha and Beta Indices

APLHA GROUP 50 1.4728 1.57703 .22303
BETA GROUP 50 1.2944 .97926 .13849
Total 100 1.3836 1.34119 .13412
From Table 3.93, it is found that the mean spread for the Alpha index is 1.472 and for
the Beta index is 1.294. Alpha index, which denotes high risk firm, has a relatively higher
spread at 1.472. It is also concluded that the high risk firms have a relatively higher risk and a
higher standard deviation too. Lower risk firms have a relatively lower spread and a lower
standard deviation. It is noted that GVK Power and Infrastructure Limited and Yes bank
appear both in Alpha and Beta indices indicating the characteristics of high return and high
risk.
To compare the performance of the two indices, one-way analysis is used and the
results obtained are given in Table 3.94. The null hypothesis in this regard is formulated as
such:
H0 :There is no significant difference in mean spread of Alpha group and Beta group
companies.
TABLE 3.94
One Way ANOVA results for the spread of Alpha and Beta indices forming companies

Total 178.079 99
Sig Significant
From Table 3.94, it is shown that in the NSE, the high return companies denoted by
alpha are less volatile than the high risk companies. On using One-wayanalysis, it is also
found from Table 3.94 that since the F value of 5.355 and p value of 0.023 are statistically
significant at 5% level, the null hypothesis is rejected . There is a difference between the

alpha group and the beta group. The alpha group companies are better performers than the
beta group companies.
3.5 EVALUATION OF RELATIONHSIP BETWEEN SPREAD AND OTHER

VARIABLES
3.5.1 Summary of the statistics of the variables computed from the Trade Files.
The shares traded during March 2010 are taken as the sample. After removing the
instruments other than shares, incomplete trading and eliminating shares which does not have
even a single negative correlation day, the number of companies taken for analysis comes
down to 1290. The average for each security for each day is calculated. The final average is
found from the daily average. Spread is calculated using Rolls formula for covariance
estimator, given as
S = 2 - COV (Pt, Pt-1).
Percent Spread is obtained by dividing Rolls Spread by the Market Price per Share.
Capitalization is a product of Market Price per Share and Number of Trades, given in rupees.
Return variance is calculated over a year.Table 3.95 presents a summary of statistics
calculated from the Trade files.
TABLE 3.95
Summary statistics of the variables computed from the Trade Files
Variables Minimum Maximum Mean Standard Deviation Median

Rolls Spread 0.005 102 1.821 3.748 1.3
Percent Spread 0.00037 0.823 0.059 0.2418 0.020
Number of Shares 16.425 31985441 492666.2 1614912.95 67002.68

traded
Market Price per 0.4675 32901 284.613 1029.38 105.61

Share
Capitalization 4322.3 3884665866 98076690.02 327239859.5 7047197.23
Return Variance 0 0.093 0.0039 0.002306 0.0034
Beta 0.02 2.3 0.715 0.4259 0.7

Table3.95 gives the summary of the sample used for the study. Rolls spread ranges
from 0.005 to 102. The mean spread for all the companies which trade on the NSE is 1.821,
with a median of 1.3. The mean spread falls in the 8th percentile. The percent spread ranges
from 0.00037 to 0.823, with a median of 0.020 and a mean of 0.059. The mean falls in 9th
percentile. This shows that the Rolls Spread and the Percent Spread are extremely right
skewed.
The lowest Market Price is Rs. 0.4675 and the highest Market Price is Rs. 32901. The
average Market Price for the 1290 shares is 284.613, the median at Rs. 105.61. It is found
that the average market price lies in the 8th percentiles. Thus a large proportion of shares on
the NSE are low priced shares. The Market Price is extremely right skewed. The Number of
Shares traded ranges from 16.425 to 31985441, with a mean value of 492666.2 and a median
of 67002.68. It is found that the average Number of Trades lies in the 9th percentile, which
again shows that the number of trades are extremely right skewed. The Capitalization
ranges from Rs 4322.3 to Rs. 3884665866, with a mean value Rs.98076690.02 and a
median of Rs 7047197.231. Once again the mean Capitalization is in the 9th percentile.
Capitalization too is extremely right skewed. The return variance, which is calculated over a
year, ranges from 0 to 0.093, with a mean of 0.0039 and a 0.0034. The mean falls in 7th
percentile, which is right skewed. The beta ranges from 0.002 to 2.3with a median of 0.4259
and a mean value of 0.715. The mean value of beta falls in the 6th percentile.
The variables of study are highly skewed. The variables are not symmetrically
distributed. In the absence of symmetric distribution of the variables of interest, it is
conceivable the full sample results may not generalize to subsamples. Hence the regression
on subsamples is considered, to draw refined conclusions. To further explore the reasons for
this skewness, the samples are partitioned into ten percentiles each and results analyzed.
3.5.2EVALUATING THE RELATIONSHIP
Spread, the measure of market microstructure is computed for all the companies taken
in the sample. A few prominent variables impact the performance of the company. These
variables are classified as microstructure variables. These variables include Capitalization,
Number of Shares traded and Market Price of the Share. The other category of variables, also
called firm specific characters do not have a direct impact on the performance of the
company. These variables are Beta of the security, Return Variance, Debt Equity Ratio, Price

Earnings Ratio, Percentage of Promoters Holdings and Percent Spread. The relation between
spread and each of these variables are analyzed here. These firm specific characters are
divided into ten percentiles. Spread for each of these percentiles is found and the relationship
is analyzed.
3.5.3.1 Percentiles based on Market Price per Share
Market Price per Share is the price at which investors trade on the security in the
market. The Market Price per Share is placed in the ascending order and based on this; all
1290 companies are divided into ten percentiles, each percentile consisting of 129 companies.
The first percentile consists of shares with the lowest Market Price per Share and the tenth
percentile consists of companies with the highest Market Price. The descriptive statistics
showing the percentiles and their respective spread are presented in Table 3.96.
TABLE 3.96
Descriptive Statistics for percentiles based on MPS
Percentiles N Mean Std. Deviation Std. Error Minimum Maximum

per 1 129 2.6398 8.95573 .78851 .36 102.00
per 2 129 2.1902 5.98668 .52710 .02 63.40
per 3 129 1.7586 1.64216 .14458 .01 12.28
per 4 129 1.7272 1.18635 .10445 .34 9.60
per 5 129 1.8394 2.07492 .18269 .06 15.10
per 6 129 1.7478 1.57987 .13910 .13 9.00
per 7 129 1.6503 2.75311 .24240 .11 25.70
per 8 129 1.6035 1.85884 .16366 .23 14.88
per 9 129 1.5348 1.13086 .09957 .04 8.09
per 10 129 1.5199 1.97674 .17404 .06 13.00
Total 1290 1.8211 3.78481 .10538 .01 102.00
It is inferred from Table 3.96 that the lowest spread of 1.519 is found in the 10th
percentiles, where the market price of the shares is highest. The highest spread of 2.639 is
found in the first percentile. As the percentile decreases, the spread increases, indicating an
inverse relationship between spread and market price per share. As the MPS increases, spread
value decreases, proving the inverse relationship.
To verify whether the spread varies among these ten categories, one-way analysis of
variance testis applied on the ten percentiles and on the market price per share. The results of

analysis of variance test are presented in Table 3.96. In this regard, the null hypothesis is
formulated as:
H0 : There is no significant difference in spread in the ten different percentiles of
MPS
TABLE 3.97
Results of the ANOVA test for percentiles based on MPS

Between Groups 138.581 9 15.398 11.075 .037
Within Groups 18326.038 1280 14.317
Total 18464.619 1289
It is found from Table 3.97 thatsince the F value of 11.075 and p value of 0.037 are
statistically significant at 5% level, the null hypothesis is rejected. There is a difference
between spread in these different percentiles. As the MPS increases, spread decreases,
showing an inverse relationship.
3.5.3Regression equation to find the effect of Market Price on Spread
The regression equation was developed by Stoll (2000)1 to analyze the firm specific
characteristics. Stoll used this model to show the robustness of the bid - ask spread as a
measure of frictions in the stock market.
Chakrabarty and Jain (2004)2, use the method followed by Stoll to analyze the firm
specific characteristics. In their study on the shares traded on the NSE, with a sample of
around 800 shares, they divide the sample into four quartiles where the first quartile consist
of shares with the lowest Market Price and fourth quartile consisting of shares with the
highest Market Price.
____________________
1. Hans R.Stoll, Friction, Journal of Finance ,55, 2000, pp1479-1514.
2. Bidisha Chakrabarty and Pankaj Jain, Understanding the Market Microstructure in the Indian
markets, Working Paper, National Stock Exchange of India, , 2004.
The methods followed by Stoll and Pankaj and Jain are followed for classification of
shares based on Market Price. Similar method is followed to get a deeper understanding of
the relationship between Spread and Market Price. The regression equation is given as:

Y = + 1 Ln (MPS) + 2Ln (Num Share) + 3 Ln (Capitalization) + 4 r 2 +5 Ln (beta)
+
where Y is the dependent variable, represents Rolls Spread. The independent

variables are Market Price per Share, Number of Shares traded, Capitalization,
Return Variance and Beta of the security.
All the variables are first calculated as the average for each security for each day and
the daily averages are calculated. Unlike the method followed by Jain and Pankaj (2004),
wherethe median share price is considered, the monthly average of share price is taken. Thus
a monthly Market Price per Share is obtained. The Number of Shares denotes the Number of
Shares that are traded. It represents the Volume of shares. Capitalization represents the rupee
Volume of shares. It is obtained by multiplying the Number of Shares with the Market Price
2
per Share.r is the return variance, calculated over the past one year. Ln represents the
natural logarithmic transform of the variables. In Table 3.98, the full sample results are
presented. In Table 3.99, based on the Market Price per Shares, the shares into ten parts
called percentiles. The first percentile consists of the shares with the lowest Market Price and
the tenth percentile consists of shares with highest Market Price. Market Price has an inverse
relationship with Spread
Fama MacBeth t-statistic (Fama and Mac Beth, 1973), is used for testing whether
the mean value of regression coefficient is different from zero and the mean values of
adjusted R2 , tested at 5% significance level. The results of these are presented in Table 3.98
TABLE 3.98
Regression analysis to find the effect of MPS on Spread - Results of full sample
Num- Return
Particulars MPS Cap D/E PH PE Beta
shares Variance
Co () - -.011 -.015 -.011 -.018 .003 .016 -.050 -.014
t 6.689 -.333 -.442 -.313 -.627 .096 .489 - -.492
1.747
P .000 .739 .659 .754 .531 .923 .625 .081 .623
From Table 3.98, it is concluded that there is a negative relationship between the
spread and market price per share, volume of shares, capitalization, debt equity ratio, beta and
return variance. Spread depends on these variables and shows a negative relationship. The
other variables which include percentage of promoter holdings and price earnings ratio are

insignificant. The results of the same are presented in Table 3.99, by dividing the MPS into
ten percentiles.
TABLE 3.99
Estimating Regression by dividing Market Price per Share into ten percentiles.
Particulars Per 1 2 3 4 5 6 7 8 9 10
.379 -.388 1.267 2.217 -.820 0.61 2.591 1.424 1.155 4.129
(.705) (.699) (.207) (.028) (.414) (.952) (.011) (.157) (.250) (.000)
MPS 2.773 1.424 -.029 -513 -.939 -1.861 -.595 -.161 -.318 -3.067
(.006) (.157) (.977) (.609) (.350) (.065) (.553) (.872) (.751) (.003)
Volume .800 .919 -.064 -.105 -.772 -.356 -.070 -.359 -.005 -1.060
(.425) (.360) (.949) (.916) (.442) (.723) (.944) (.720) (.996) (.291)
Capitalization -.083 -1.052 -.126 .100 -.796 -.395 -.096 .341 -.259 -.704
(.281) (.295) (.900) (.921) (.428) (.693) (.924) (.734) (.796) (.483)
Debt Equity -.091 -.641 -.461 .608 -.277 0.167 -.505 -.231 -.284 -.230
ratio
(.928) (.523) (.645) (.545) (.782) (.867) (.615) (.818) (.777) (.818)
Promoter .640 -.034 1.346 1.284 .599 .178 .888 -1.029 .241 .339
Holding %
(.524) (.973) (.181) (.202) (.550) (.859) (.371) (.305) (.810) (.735)
Price - 1.646 .775 -.384 -.713 -.100 -1.012 -.889 -.532 .402 3.525
Earnings
ratio
(.102) (.440) (.702) (.477) (.921) (.313) (.376) (.596) (.689 (.001)
Beta -.995 .476 -.633 1.306 .121 -2.095 -1.672 -1.204 (-.079 -1.043
(.322) (.635 (.528) (.194) (.904) (.038) (.097) (.231) (.937) (.299)
Return .309 -.270 .890 -.526 1.574 -1.026 .992 1.700 .482 .734
Variance
(.758) (.788) (.375) (.600) (.118) (.307) (.323) (.092) (.631) (.464)
2
R .299 .192 .174 .203 .180 .271 .233 .225 .128 .348
2
Adj.R 0.29 -.027 -.035 -.023 -.032 0.12 -.009 -.013 -.049 .062
F 1.476 .574 .466 .647 0.502 1.190 .863 .802 .248 2.060
P .173 .798 .878 .736 0.853 .311 .550 .602 .980 .045
It is inferred from Table3.99that eight out of ten percentiles of market price per share
exhibit a negative relationship with spread. Except for the first two percentiles which show
insignificance, spread has an inverse relationship with market price per share. Volume too
exhibits a negative relationship with spread in eight out of ten percentiles, except the first two
percentiles which consists of low volume portfolios. Except for percentiles 4 and 8,
capitalization too exhibits a negative relationship. Debt equity ratio shows a negative

relationship in eight out of ten percentiles. The percentage of promoter holding is
insignificant to spread. This variable shows a positive coefficient in eight out of ten
percentiles. The Price earnings ratio which is dependent on share price shows an inverse
relationship in six out of ten portfolios. The securitys beta shows a negative relationship in
seven out of ten portfolios. Return variance exhibits a positive relationship in seven out of ten
percentiles. As the variance increase, the spread too will increase. Spread and return variance
has a positive relationship.
3.5.4 Percentiles based on Number of Trades
The Number of Shares Traded(volume) is placed in ascending order and is divided into ten
percentiles. The first percentile consists of companies with the lowest volume of shares
traded and the tenth percentile consists of highest number of shares traded. Spread is
compared among these percentiles. The descriptive statistics for the same are presented in
Table 3.100.
TABLE 3.100
Descriptive Statistics for percentiles based on Number of Trades
Std. Std.
Particulars N Mean spread Minimum Maximum
Deviation Error
per 1 129 2.8272 9.05877 .79758 .01 102.00
per 2 129 2.7691 6.28240 .55313 .13 63.40
per 3 129 1.6445 2.61550 .23028 .06 25.70
per 4 129 1.9277 2.23271 .19658 .02 11.76
per 5 129 1.5878 1.22866 .10818 .06 8.71
per 6 129 1.4772 1.16121 .10224 .04 8.00
per 7 129 1.6898 1.69216 .14899 .11 10.68
per 8 129 1.5359 1.02664 .09039 .09 7.67
per 9 129 1.3151 .68684 .06047 .06 5.10
10.00 129 1.4372 1.00155 .08818 .30 7.50
Total 1290 1.8211 3.78481 .10538 .01 102.00
It is seen from Table 3.100 that spread is lowest for shares in the 9th percentile, which
denotes highest number of shares traded. The spread here is 1.315.The next lowest spread is
found in the 10th percentile, at 1.437. As the number of trades increases, spread decreases.
Spread is highest in the first percentile, where the number of trades is low. A one way
analysis of variance is used to test the level of significance for spread in ten percentiles. In
this regard, the null hypothesis is formulated as such:

H0 : There is no significant difference among the spread in ten percentiles
representing the number of trades.
To compare the relationship between spread and number of trades, one-way analysis of
variance test is used.The results of the analysis of variance are presented in Table 3.101.
TABLE 3.101
Results of the ANOVA test for percentiles based on Number of Trades

Between
339.050 9 37.672 2.660 .005
Groups
Within Groups 18125.570 1280 14.161
Total 18464.619 1289
Sig. Signature
From Table, 3.101, it is seen that since the F value of 2.660 and p value of 0.005 are
statistically significant at 5% level, the null hypothesis is rejected.Therefore it is concluded
that there exist a difference in spread among the ten percentiles and has an inverse
relationship with number of trades. The results are further analyzed using Regression.
3.5.5 Regression to find the effect of Volume on Spread
Volume is divided into ten parts called percentiles and is placed in ascending order.
The first percentile consists of the shares with the lowest trading volume and the tenth
percentile consists of shares with highest trading Volume. Trading Volume has an inverse
relationship with Spread
Fama Macbeth t-statistic (Fama and Mac Beth, 1973), is used for testing whether
the mean value of regression coefficient is different from zero and the mean values of
adjusted R2 , tested at 5% significance level. The results are presented in Table 3.102.
TABLE 3.102
Regression analysis to find the effect of Number of Shares
Traded on Spread : Results of full sample
Promoter
Num Debt Price
Particulars MPS Capitalization Holding
Shares Equity Earnings
%

Co () - -.019 -.010 -.020 -.017 .003 .018
t 8.432 -.573 -.318 -.590 -.616 0.097 .547
P .000 .567 .750 .555 .538 .922 .585
R2 = .002 R = -.003, F = .361; p = .904)
Table 3.102 presents the full sample results. It is seen that the spread has an inverse
relationship between the number of shares traded, the market price per share, the
capitalization and the debt equity ratio. The relationship is insignificant for the percentage of
promoters holding and price earnings ratio. To gain a better understanding, based on the
number of shares traded, known as volume, the sharesare divided into ten percentiles and
regression is found for these percentiles. The results are presented in Table 3.103.
TABLE 3.103
Estimating Regression by dividing Number of Shares traded (Volume) into ten

percentiles
Particulars Per 1 2 3 4 5 6 7 8 9 10
1.748 .060 2.944 .729 1.895 .871 .926 2.352 2.452 6.897
(.083 (.952) (.004) (.467) (.065) (.386) (.356) (.020) (.016) (.000)
Volume -.307 .837 -1.906 -.558 -.314 1.210 -.902 -.478 -1.257 -1.626
(.759) (.404) (.059) (.578) (.754) (.229) (.369) (.633) (.211) (.106)
MPS -.058 -.226 -.390 -.059 .260 -1.360 -1.195 -2.074 5.154 -2.461
(.954) (.821) (.697) (.953) (.795) (.176) (.234) (.040) (.000) (.015)
Cap -.056 .004 .350 .038 -.355 -1.941 -.836 -2.422 -4.729 -2.110
(.955) (.997) (.727) (.970) (.723) (.055) (.405) (.017) (.000) (.037)

D/E -.480 -.290 -.379 .125 -.703 -.457 -.643 -.889 .697 .462
(.632) (.772) (.705) (.901) (.483) (.648) (.521) (.376) (.487) (.645)
PH -.642 1.108 -.043 -.003 -.151 -.951 -.415 .773 1.903 .309
(.522) (.270) (.966) (.998) (.880) (.343) (.679) (.441) (.059) (.758)
PE -.099 -.567 -.013 1.207 -.055 -1.092 -1.039 4.150 -1.488 -.799
(.921) (.571) (.990) (.230) (.957 (.277) (.301) (.000) (.139) (.426)
2
R 0.74 .154 .182 .122 .094 .337 .180 .482 .475 .236
2
Adj.R -.043 -.024 -.014 -.033 -.040 .070 -.015 .194 .188 .009
F .112 .497 .697 .309 .181 2.606 .683 6.139 5.925 1.194
P .995 .810 .653 .931 .982 0.021 .663 .000 .000 .314
It is seen from Table 3.103 that the relationship between Rolls spread and volume are
negative in eight out of ten percentiles. The results of the sixth and the first percentile are
insignificant. The market price of shares and spread shows negative results for eight out of
ten portfolios. Capitalization shows negative relationship with spread in seven out of ten
portfolios. Portfolios two to four exhibit a positive relationship. The debt equity ratio shows a
negative relationship in seven out of ten percentiles. Even thoughspread is not influenced by
the debt equity ratio, the regression table shows negative relationship, ignoring the level of
significance. Percentage of promoters holdings exhibit a negative relationship in seven out of
ten portfolios. The price earnings ratio tooshows a negative relationship in eight out of ten
percentiles.
Hence, it is concluded that the negative relationship between spread and the other
variables exists in eight percentiles for most of the variables. So it is concluded that the
spread is negatively related with the microstructure variables.
3.5.6Percentiles based on capitalization

The spread value of market capitalization is divided into ten predominant parts called
percentiles. Capitalization is placed in ascending order and divided into ten percentiles. The
first percentile consists of companies with the lowest capitalization and the tenth percentile
consists of companies with the highest capitalization. The spread in these percentiles are
compared. The descriptive statistics for the same are presented in Table 3.104.
TABLE 3.104
Descriptive Statistics for percentiles based on Capitalization

Std. Std.
Particulars N Mean Minimum Maximum
Deviation Error
per 1 129 1.9367 2.27438 .20025 .06 13.00
per 2 129 3.0150 9.58092 .84355 .01 102.00
per 3 129 2.0970 5.69236 .50118 .18 63.40
per 4 129 1.5419 1.59720 .14063 .02 15.10
per 5 129 1.7728 1.67780 .14772 .04 10.68
per 6 129 1.7286 1.73350 .15263 .13 11.40
per 7 129 1.5895 1.25300 .11032 .24 8.36
per 8 129 1.5453 1.12013 .09862 .20 8.00
per 9 129 1.4736 .80083 .07051 .06 8.50
per 10 129 1.5109 1.04028 .09159 .06 7.67
Total 1290 1.8211 3.78481 .10538 .01 102.00
From Table 3.104, it is seen that the least spread values of market capitalization is
found at 9th percentile at 1.473 and the highest spread value is found at the 2nd percentile at
3.015. The second lowest spread is found in the 10th percentile. Therefore it is concluded that
as the market capitalization increases, spread decreases. Spread has an inverse relationship
with capitalization.To verify whether the spread values of market capitalization varies among
the ten groups, one-wayanalysis of variance test is applied on the market capitalization and
ten different percentiles. This leads to Table 3.105. In this regard, the null hypothesis is given
as such:
H0 : There is no significant relationship between spread and capitalization given in
ten percentiles.
TABLE 3.105
Results of ANOVA testfor percentiles based on Capitalization

Between Groups 251.617 9 27.957 1.965 .040
Within Groups 18213.003 1280 14.229
Total 18464.619 1289
Sig. - Significant
From Table 3.105, it is found that since the F value of1.965 and p value of 0.040 are
statistically significant at 5% level, the null hypothesis is rejected. There is a significant
difference between spread and capitalization.
3.5.7Regression to find the effect of Capitalization on Spread

Regression is used to find the relationship between spread and capitalization.
Capitalization is divided into ten percentiles and spread is found for each of these percentiles.
Table 3.106 presents the results for the full sample.
TABLE 3.106
Regression analysis to find the effect of Capitalization onSpread:Results of full sample
Particulars Capitalization MPS Volume Return Variance

Co () - -.010 -.003 -.015 -.050 .015
t 8.219 -0.291 -.096 -.427 -.1.752 -.530
p .000 .771 .923 .669 .080 .596
R2 = .004; Adj R2 -.002 F = .684 p = .706
Table 3.106 presents the results for the full sample. The results show that all the
variables except return variance have a negative relationship with spread, showing negative
value for adjusted R2. Capitalization, the product of market price per shares and volume is
taken for dividing the shares into ten percentiles and regressions is used in these percentiles
to explore the relationship with spread. The results of regression in ten percentiles of
capitalization and their spread are presented in Table 3.107.
TABLE 3.107
Estimating Regression by dividing Capitalization into ten percentiles
Particulars 1 2 3 4 5 6 7 8 9 10
3.247 1.746 .918 .874 1.546 2.247 3.169 3.351 4.035 6.027
(.002) (.084) (.360) (.384) (.125) (.026) (.002) (.001) (.000) (.000)
Cap .941 .623 -.820 -.542 -.137 -0.558 -0.721 1.219 -0.077 -1.458
(.349) (.535) (.414) (.559) (.891) (.578) (.472) (.225) (.39) (.139)
MPs .814 1.198 -.342 .073 -.342 -1.190 -.609 -.089 -.066 -1.054
(.417) (.233) (.733) (.942) (.733) (.236) (.544) (.929) (.947) (.294)
Num -1.237 0.164 -.965 -2.138 -2.071 -2.494 -1.570 -0.045 -1.063 -0.669
(.218) (.870) (.337) (.035) (.040) (.014) (.119) (.964) (.290) (.504)
-.966 -1.287 .357 1.218 1.777 -1.140 -.757 0.779 -1.739 -1.070
(.336) (.201) (.721) (.226) (.078) (.257) (.451) (0.437) (-.085) (.287)
R.V .179 -.608 1.738 1.111 -.409 .504 -.506 -0.418 .051 1.343
(.858) (.110) (.085) (.269) (.683) (.614) (.614) (.677) (.959) (.187)
R2 0.179 .235 .195 .226 .231 .248 0.170 .142 .185 .246

Adj.R2 -.007 .017 -.001 0.13 .015 .023 -.010 -.020 -.005 .022
F .815 1.447 .973 1.328 1.355 1.611 0.735 .510 .868 1.586
P .541 .214 .437 .257 .234 0.162 .598 .769 0.505 .169
From of Table 3.107, itis inferred that capitalization is negatively related to spread in
seven out of ten portfolios. The eighth portfolio shows a positive relationship. The market
price per shareshows a negative relationship in seven out of ten percentiles. The volume of
shares shows a negative result in nine out of ten percentiles. This is the first instance where a
negative result exists in nine percentiles. Beta shows a negative relationship in six out of ten
percentiles. Return variance shows a positive relationship in six out of ten percentiles. The
results of regression from Table 3.107 show a negative relationship between spread and
market capitalization.
3.5.8: Percentiles based on Beta value
Beta of a security refers to the sensitivity with which a share moves along with the
index. The performance of the company is compared with the index and the relationship
between these two entities is measured by beta. A beta of 1 indicates that the market and the
security move in the same direction. A beta greater than 1 is an indication that the companys
performance is better than the market. A beta value of less than 1 indicates poor performance
of the company. The descriptive statistics of the ten percentiles of beta is represented in
Table 3.108.
TABLE 3.108
Descriptive Statistics for percentiles based on Beta Value
Std. Std.
Percentiles N Mean Minimum Maximum
Deviation Error
per 1 129 2.4055 8.94850 .78787 .06 102.00
per 2 129 2.0981 2.33129 .20526 .18 12.28
per 3 129 1.8070 1.82917 .16105 .20 13.00
per 4 129 1.9147 2.92308 .25736 .01 27.50
per 5 129 1.5099 1.30186 .11462 .10 8.50
per 6 129 1.8378 1.76582 .15547 .20 9.20
per 7 129 2.2703 6.07495 .53487 .11 63.40
per 8 129 1.4505 1.00453 .08844 .16 7.40
per 9 129 1.5217 1.48719 .13094 .04 11.60
per 10 129 1.3961 .87903 .07739 .06 7.96
Total 1290 1.8211 3.78481 .10538 .01 102.00

It is found from Table 3.108 that spread is lowest in the tenth percentile at 1.39 and
highest in the first percentile at 2.40. This shows that the relationship between beta and the
spread is negative. As the beta value increases, spread declines. One-wayanalysis is used to
find the difference in performance of spread in these ten percentiles. The results are presented
in Table 3.109. In this context, the null hypothesis is formulated as:
Ho : There is no significant difference in spread in the ten percentiles based on beta
of the security.
TABLE 3.109
Results of the ANOVA test for percentiles based on Beta value of security

Between Groups 146.241 9 16.249 11.135 .033
Within Groups 18318.378 1280 14.311
Total 18464.619 1289
Since the F value from Table3.109 of 11.135 and p value of 0.033 are statistically
significant at 5% level, the null hypothesis is rejected. There is difference between the
performances of the company measured by spread in different percentiles. Spread and Beta of
the security shows an inverse relationship.
3.5.9: Regression to find the effect of beta of a share on Spread
To get a clear view of the spread in these ten percentiles and to find its relationship
with these variables, Regression is used to analyze the full sample and the results are
presented in Table 3.110.
TABLE 3.110
Regression analysis to find the effect of Beta on Spread
Particulars Capitalization MPS Volume Return Variance

Co () - -.062 -.005 -.003 -.012 .013
T value 7.929 -2.099 -.132 -.110 -.353 .459
P value .000 .036 .895 .913 .724 .646
2 2
R = .005; Adj R -.001 F = 1.235; Sg = .290

From Table 3.110, it is found that the spread has a negative relationship with all other
variables except return variance. Beta shows a negative relationship with spread. The Beta
value of a security shows the sensitivity of the securitys return to that of the market. A
comparison is made between the security returns and the market.
To gain a better understanding, the shares are divided into ten percentiles based on
their beta value and regression is found for each of the percentiles. The results are presented
in Table 3.111.
TABLE 3.111
Estimating Regression by dividing beta value of a security into ten percentiles
Particulars 1 2 3 4 5 6 7 8 9 10
1.791 2.763 1.763 0.681 1.695 1.158 0.284 -0.835 1.192 3.855
(.076) (.007) (.080) (.497) (.093) (.249) (.777) (.405) (.236) (.000)
Beta .038 -1.276 -.631 -.084 -.925 -0.879 -.280 1.251 -.0563 -1.614
(.970) (.204) (.529) (.933) (.357) (.381) (.780) (.213) (.575) (.109)
Cap -.243 .536 -1.122 -.210 -.529 0.169 -.053 0.053 -.644 -4.016
(.808) (.593) (.264) (.834) (.598) (.866) (.958) (0.958) (.521) (.000)
MPs -.258 -.902 2.125 -.166 .090 -0.580 -.114 -0.092 -1.061 -1.484
(.797) (.369) (.036) (.868) (.928) (.563) (.910) (.927) (.291) (.000)
Vol -.102 0.676 -.449 -.355 1.402 -0.440 -.367 -0.574 -.258 -3.184
(.919) (.501) (.654) (.723) (.163) (.661) (.114) (.567) (.797) (..2)
Ret Var -1.511 -0.956 .830 0.266 0.509 0.799 1.920 -0.572 -.167 1.557
(.119) (.341) (.381) (.790) (.612) (.426) (0.057) (.569) (.868) (.122)
1
R .143 0.184 .253 .068 0.173 0.136 0.182 0.146 0.144 .517
2
Adj.R -.019 -.005 0.026 -0.036 -.009 -0.022 -.006 -0.019 -0.019 0.238
F .571 .863 1.685 0.116 0.762 0.461 .845 .533 0.521 8.996
P .768 .508 0.143 0.989 0.599 0.804 .521 0.751 0.760 .000

From Table 3.111, it is found that the beta value of the securities shows a negative
relationship in eight out of ten percentiles. Capitalization is negatively related to spread in
seven out of ten percentiles. MPS and volume are negatively related to spread in eight out of
ten percentiles. Return variance has a positive relationship with spread in six out of ten
percentiles. The overall results show that the relationship between the independent variables
and spread are inversely related, except return variance, where it is difficult to form pattern of
relationship.
3.5.10: Percentiles based on percentage of promoters Holding
Financial institutions which invest a considerable proportion in the companies shares

are the promoters. Placing the percentage of promoters holdings in ascending order, the
spread is divided into ten percentiles. The first percentile consists of shares with lowest
percentage of promoterholdings and the tenth percentile the highest percentage of promoter
holdings. The descriptive statistics of the ten percentiles and their spread is presented in
Table 3.112.
TABLE 3.112
Descriptive Statistics for percentiles based on Promoters Holdings
Std. Std.
Deviation Error
per 1 129 1.4102 1.03176 .09084 .04 7.96
per 2 129 1.8846 2.24676 .19782 .01 12.28
per 3 129 1.7208 2.48966 .21920 .02 25.70
per 4 129 2.4525 8.97383 .79010 .20 102.00
per 5 129 1.8772 2.96773 .26129 .09 27.50
per 6 129 1.6685 1.38968 .12235 .17 8.50
per 7 129 1.7090 1.69737 .14945 .08 10.20
per 8 129 2.1012 5.62905 .49561 .16 63.40
per 9 129 1.6946 1.52039 .13386 .06 13.00
per 10 129 1.6929 1.74917 .15401 .13 14.88
Total 1290 1.8211 3.78481 .10538 .01 102.00
Table 3.112 show that the pattern of spread for the ten percentiles. The results do not
follow any pattern. The value of spread is random. The highest spread of 2.452 is found in the
fourth percentile. The lowest spread of 1.410 is found in the first percentile. Therefore it is
concluded that the spread is not influenced by the promoters holding. To verify the results, a

one way analysis of variance is applied on spread and promoters holdings. The results are
presented in Table 3.113. In this regard, the null hypothesis is formulated as such:
Ho : There is no significant relationship between the spread in different percentiles

based on percentage of promoters holdings.
TABLE 3.113
Results of the ANOVA test for percentiles based on Promoters Holdings
Particualrs Sum of Squares df Mean Square F Sig.

Between
94.371 9 10.486 .731 .681
Groups
Within Groups 18370.248 1280 14.352
Total 18464.619 1289
As it is shown in Table 3.113, since the F value of 0.731 and p value of 0.681, are
statistically insignificant at 5% level, the null hypothesis is accepted. There is no significant
relationship between the performances of the company in the ten different percentile. Spread
is obtained irrespective of promoters holding. Spread is not dependent on promoters
holdings.
3.5.11: Percentiles based on Price Earnings ratio
The Price Earnings ratio is the ratio between the Market Price per Share and the
Earnings per Share. A high ratio indicates that the security is overvalued and a low ratio
indicates the security is undervalued, because the Market Price per Shares is based on the
investors perception about the company. By placing the PE ratio is ascending order, the
spread is divided into 10 percentiles, each percentile consisting of 129 shares. The first
percentile consists of securities with the lowest PE ratio and the tenth percentile consists of
securities with the highest Price Earning ratio.The descriptive statistics showing the
relationship with spread are presented in Table 3.114.
TABLE 3.114
Descriptive Statistics for percentiles based on Price Earnings Ratio
Std. Std.
Deviation Error

per 1 129 1.8816 1.70804 .15038 .08 9.00
per 2 129 1.6338 1.84724 .16264 .11 14.88
per 3 129 2.2330 8.90627 .78415 .17 102.00
per 4 129 1.7925 2.75397 .24247 .02 27.50
per 5 129 2.0605 2.38271 .20979 .13 15.10
per 6 129 1.6967 1.35757 .11953 .18 10.68
per 7 129 1.8000 1.69992 .14967 .06 11.40
per 8 129 2.1655 5.92083 .52130 .30 63.40
per 9 129 1.3511 1.74257 .15342 .01 11.76
per 10 129 1.5968 1.35600 .11939 .04 9.00
Total 1290 1.8211 3.78481 .10538 .01 102.00
From Table 3.114, it is seen that the spread is lowest at 1.351 for the ninth percentile
and highest for the third percentile at 2.233. The second lowest spread of 1.59 is for the group
of companies belonging to the tenth percentiles. Table 3.114 shows that it is difficult to form
patterns of relationship between spread belonging to the ten percentiles and price earning
ratio. One-wayanalysis test is used to compare the performance in these ten percentiles. The
following results are obtained and presented in Table 3.115. However, the null hypothesis in
this context is formulated as such:
H0 : There is no significant relationship between spread and price earning ratio.
TABLE 3.115
Results of the ANOVA test for percentiles based on Price Earnings Ratio

Between Groups 86.727 9 9.636 7.671 .636
Within Groups 18377.892 1280 14.358
Total 18464.619 1289
Sig. Significant
It is shown in Table 3.115 that since the F value of7.671 and p value of 0.636 are
statistically significant at 5% level, the null hypothesis is accepted. Therefore it is concluded
that there does not exist any difference between spread in different percentiles. Performance
of the company measured by spread is not dependent on Price Earnings ratio of the
company.
3.5.12: Percentiles based on debt equity ratio

Debt equity ratio denotes the ratio of debt to equity. The proportion of debt is
compared with the proportion of equity. A Debt Equity of 2:1 indicates that the companys
capital structure is optimal. Placing the Debt Equity ratio in ascending order, ten percentiles
are formed. The first percentile consists of shares with the lowest debt equity ratio and the
tenth percentile consists of shares with the highest debt equity ratio and spread is compared
among these ten percentiles. The descriptive statistics for the same are presented in Table
3.116.
TABLE 3.116
Descriptive Statistics for percentiles based on Number of Trades
Std. Std.
Deviation Error
per 1 129 1.7322 2.59748 .22870 .02 27.50
per 2 129 1.6284 1.47281 .12967 .19 11.76
per 3 129 2.2309 8.90669 .78419 .04 102.00
per 4 129 1.7257 2.58207 .22734 .20 25.70
per 5 129 1.8631 2.09035 .18405 .01 15.10
per 6 129 1.5812 1.67675 .14763 .06 10.90
per 7 129 2.4799 5.70486 .50229 .15 63.40
per 8 129 1.7951 2.08932 .18395 .09 13.00
per 9 129 1.5798 1.67507 .14748 .17 12.28
per 10 129 1.5953 1.27007 .11182 .06 8.71
Total 1290 1.8211 3.78481 .10538 .01 102.00
Table 3.116 shows that thelowest spread of 1.579 is for the companies belonging to
the ninth percentile of the Debt-Equity ratio and the highest spread of 2.230 is for the
companies belonging to the third percentile. Here it is difficult to draw a relationship between
spread and debt equity ratio. Spread is irrespective of the debt equity ratio. High debt
proportion in the capital is an indication of financial risk, where the company will not be in a
position to pay the returns to shareholders. At the same time, a levered firm has a low cost of
capital, as proposed by Net Income and Net Operating Income approaches. When the
company has an optimum debt equity ratio, it increases the value of the firm. So the results

prove that the performance of the company measured by spread is not dependent on the debt
equity ratio of the company. In this contest, the null hypothesis is formulated as such:
H0 : There is no significant relationship between spread and the ten percentiles of debt
equity ratio.
One-wayanalysis of variance is used to further verify the results and the results drawn
are presented in Table 3.117
TABLE 3.117
Results of ANOVA test for percentiles based on Debt Equity Ratio
Mean
Particulars Sum of Squares df F Sig.
Square
Between Groups 106.475 9 11.831 .825 .593
Within Groups 18358.145 1280 14.342
Total 18464.619 1289
From Table3.117, it is found that since the F value of 0.825 and p value of 0.593 are
statistically insignificant at 5% level, the null hypothesis is accepted.There is no relationship
among the spread in different percentiles and the Debt Equity ratio.
3.5.13: Percentiles based on Percent Spread
Percent spread is the Rolls Rupee spread divided by the share prices. Based on the
percent spread, all 1290 companies are divided into ten predominant parts called percentiles.
Each percentile consists of 129 shares. These percentiles are placed in the ascendingorder.
The first percentile consists of shares with the lowest percent spread and the tenth percentile
consists of shares with the highest percent spread. The descriptive statistics are presented in
Table 3.118.
TABLE 3.118
Descriptive Statistics for percentiles based on Percent Spread
Perc Std. Std.
N Mean Minimum Maximum
entiles Deviation Error
per 1 129 1.5078 1.20593 .10618 .13 8.00

per 2 129 1.5116 1.04729 .09221 .06 7.96
per 3 129 1.4240 1.07109 .09430 .09 9.00
per 4 129 1.5278 1.22410 .10778 .20 9.60
per 5 129 1.3962 .87446 .07699 .01 6.00
per 6 129 1.5012 1.15068 .10131 .06 9.20
per 7 129 1.9651 2.95254 .25996 .13 27.50
per 8 129 1.7108 1.86454 .16416 .02 15.10
per 9 129 1.9715 2.66762 .23487 .06 25.70
per 10 129 3.6956 10.64593 .93732 .11 102.00
Total 1290 1.8211 3.78481 .10538 .01 102.00
It is found from Table 3.118 that the lowest spread of 1.396 is in the fifth percentile and the
highest spread of 3.69 is in the tenth percentile. The tenth percentile consists of securities
with highest percent spread. So there is no significant relationship between the percent
spread among different percentiles. Rolls spread is irrespective of Percent spread. In this
regard, the null hypothesis is formulated as such:
H0 : There is no significant differences in spread among the ten percentiles based on percent
spread.
To verify the results, one-way analysis is used and the results obtained are presented
in Table 3.119.
TABLE 3.119
Results of ANOVA test for percentiles based on Percent Spread
Mean
Particulars Sum of Squares df F Sig.
Square
Between Groups 553.388 9 61.488 . 394 .672
Within Groups 17911.232 1280 13.993
Total 18464.619 1289
Sig. Significant
From Table 3.119, it is found that sincethe F value of0.394 and p value of 0.672 are
statistically insignificant at 5% level, the null hypothesis is accpeted.Spread varies among the
different percentiles. There are differences between the percent spread and Rolls spread.
3.5 SPREAD FROM SNAPSHOT DATA
Spread is calculated from the limit order book. This gives a direct measure of spread. The
Limit Order Book (LOB) snapshots are not collected for the opening and closing sessions of
the market. The spread calculated from the Limit Order Book is called the Actual Spread.

The NSE does not distribute continuous LOB data, hence calculating actual bid ask spread
actual spreads from the LOB is not directly possible.However, the NSE collects snapshot
data of the LOB at four different times for the spot market segment at 11 A.M, 12 noon, 1
P.M and 2 P.M and at five different intervals for the futures and options segment at 11
A.M, 12 noon, 1 P.M, 2 P.M and 3 P.M. The LOB snapshot lists all outstanding orders,
identified as buy or sell orders, that are in the book at the time the snapshot is recorded. There
are stop loss orders and regular limit orders. All the stop loss orders are ignored from the
sample. Each order entry also identifies the time at which it was entered into the LOB, the
associated price and quantity. (Depth).
Ask price is the lowest sell price amongst all outstanding orders in the LOB at each snapshot
time. Depth is the quoted quantity associated with the ask and bid prices. Spread is the rupee
spread, calculated as the difference between the ask and bid prices for each stock snapshot
combination. Percentage spread is the rupee spread divided by quote midpoint. The age is the
difference between the snapshot date - time and the order date time. Sometimes the
snapshot flies are recorded with a lag due to time taken to record all of the outstanding orders
across all stock into one file. The calculated age of such orders will be negative. These orders
are retained as they represent the freshest orders. This accounts for the minimum age for both
the bid and the ask orders being negative. The analysis is snapshot data are presented in Table
3.120
TABLE 3. 120
Results of Analysis of snapshot data
Particulars Mean Standard Deviation Minimum Maximum

Ask Price 108.37 724.38 0.54 33076.75
Bid Price 104.45 745.54 0.25 35093.95
Ask Depth 789.94 2045.45 1.00 4238475
Bid Depth 706.58 1998.37 1.00
2854326.75
Spread 1.47 10.27 0.00 102
Percent Spread 0.037 0.028 0.00 2.9
Ask Age 3879.42 28715.85 -23874.15 74815.54
Bid Age 3176.54 1758.62 -23874.15 69972.23

The snapshot data are recorded at hourly intervals, beginning at 11 A.M and ending at 2 P.M.
From the Table 3.120, it is found that the average bid price is 104.45 against an average ask
price of 108.37. The ask price is slightly higher than the bid price. Similarly the ask depth is
higher than the bid depth. The ask age too is higher than the bid age. The difference between
the snapshot date and time and the time and date of placing the order is higher. It is also seen
from Table 3.120 that the mean spread calculated directly from the limit order snapshot is
1.47, a value much lower than the estimated spread from Rolls formula.
3.6 SUMMARY
Spread was calculated for all 1290 companies. These companies were classified based on the
sectors and indices. A sector is a combination of related industries. Sixteen such sectors were
formed and the relationship between each of the industry within each sector was found. The
results showed that there does not exist any relationship between the performances of each of
these industries. These industries and sectors performance were independent of each other.
Based on the indices formed at the NSE, these companies were classified under four broad
indices. These again were classified into 23 indices. The performance of the index forming
companies was compared with the non-index forming companies. It was found that in most
cases, the index forming companies performed better in the NSE compared to the non-index
forming companies. The index forming companies were said to be more liquid than the non
index companies.
Regression analysis was carried out to find the market microstructure variables
influence on spread. It was found that these variables had an inverse relationship with spread.

Ex-Dividend Day Bid-Ask Spread Effects in A Limit

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ex-Dividend Day Bid-Ask Spread Effects in A Limit

Uploaded by

Copyright:

Available Formats

CHAPTER III

BID ASK SPREAD FOR SPOT MARKET

3.2 ANALYTICAL FRAMEWORK

S = 2 - COV (Pt, Pt-1)

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

The formula for one way analysis of variance given as

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

where (k-1) represents degrees of freedom (d.f.) between samples.

where (n-k) represents degrees of freedom within samples

3.3 SECTOR WISE BID-ASK SPREAD

3.3.1 Industries for Agriculture Sector

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

Spread for Agriculture based Industries

S. No Agriculture based Industries Number of respondent units Mean Spread

The results of the one way analysis is presented in Table 3.2.

ANOVA test for theSpread of industries in Agriculturesector

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

3.3.2. Industries for AutomobileSector

Spread for Automobilebased industries

S.No Automobile based Industry Number of respondent units Mean Spread

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

H 0 : There is no significant difference of the mean spread among the different

Particulars Sum of Squares df Mean Square F Sig. Results

3.3.3 Industries forBanking and Financial Services Sector

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

Non Banking Finance Companies cater to a wide segment of customers. Institutions

Spread for Banking and Financial Services based industries

S.No BFSI based Industries No of Respondent Units Mean Spread

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

ANOVA testfor spread of industries in BFSIsector

Particulars Sum of Squares df Mean Square F Sig. Result

3.3.4 Industries for Capital Goods Sector

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

Spread for Capital Goods based industries

S. No Capital Goods based Industry Number of Mean Spread

Total 130 1.86

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

ANOVA testfor the Spread of industries in Capital Goods sector

3.3.5 Industries for Chemicals Sector.

Chemicals industry is one of the oldest industries in India. Volumes of production in

Spread for Chemicalsbased industries

S.No Chemicals based Industry Number of respondent units Mean Spread

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

3.3.6. Industries for the Construction and Infrastructure sector

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

Spread for Construction and infrastructure based industries

Total 138 2.03

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

ANOVA testfor Spread of industries in Construction and Infrastructuresector

Particulars Sum of Squares df Mean Square F Sig. Result

3.3.7. Industries for Food and Food Processing Sector

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

Spread for Food and Food Processing based industries

S.No Industry Number of companies Spread

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

3.3.8 Industries for IT and ITeS Sector

Information Technology is a knowledge based industry which has tremendous

Spread for Information Technology and IT enabled Service based industries

1 Computer Hardware 9 1.34

Total 106 1.516

Print to PDF without this message by purchasing novaPDF (http://www.novapdf.com/)

The results of this are shown in Table 3.16.

ANOVA testfor the spread of industries in Information Technology and IT enabled