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Multiple Dimensions of Cyclicality in Investing

Author

Listed:
  • Thillaikkoothan Palanichamy

    (Madras School of Economics)

  • Parthajit Kayal

    ((Corresponding author), Madras School of Economics)

Abstract

Returns on Equity as an asset class tend to be erratic and uneven. Contrary to popular opinion, such fluctuations in returns cannot be attributed to business cyclicality alone. Historically, investors' attitude towards risk has had ramifications on how individual stocks and indices are priced. Commonalities across market up-cycles and down-cycles are examined using data on the Nifty-50 index. Based on firm-level characteristics, the investible universe is segregated into two categories: quality and Cyclical. The performance of the Quality and Cyclical portfolio across market cycles is analysed. Although markets are ‘efficient’ in the long run, investor perception plays an important role in short-term pricing. The Price to Earnings (P/E) ratio in spite of its shortcomings serves as a useful tool in evaluating prospective investments.

Suggested Citation

  • Thillaikkoothan Palanichamy & Parthajit Kayal, 2022. "Multiple Dimensions of Cyclicality in Investing," Working Papers 2022-216, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2022-216
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    References listed on IDEAS

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    More about this item

    Keywords

    Quality; Cycle; Investment; Portfolio;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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