Research at CAF focusses on emerging capital markets. At present, the following research tracks dominate CAF’s research agenda. Each track is expected to generate a series of inter-linked studies. In all of them, resident researchers and external scholars based at foreign institutions work together.
Behavioural biases in portfolio decisions of different categories of investors Recently, a growing field of research in finance has been examining stock market activities of various classes of investors with a view to understanding how cognitive biases of various kinds influence their portfolio decisions. Currently, several projects in this area are underway at CAF. The objective of one of the projects is to determine what motivates individual investors to trade. In this research, we use data that the National Stock Exchanges (NSE) of India generously supplied to us. Research team: Sankar De (ISB), Naveen Reddy (ISB), Bhimasankaram Pochiraju (ISB), Rahul Chhabra (ISB) and Subrata Sarkar (IGIDR and ISB)
Finance, growth and inequality There is a large literature on the relation between growth and inequality, and also another large literature on financial development and growth. But there is little on the effects of financial development on economic inequality. The general finding is that growth increases inequality in the earlier stages of development, and reduces it during later stages. But the process through which growth affects inequality is important for policy purposes. Examining financial development may provide an answer. If financial development aids growth primarily by benefitting incumbents, then inequality will increase. On the other hand, if financial development aids growth by relaxing financial constraints of the poor and small firms, inequality will decrease. Thus, looking at the process of how financial development aids growth will unify the literature on finance, inequality and growth. Identifying the specific channels through which finance affects growth will provide important policy guidelines that have large macroeconomic implications Research team: Sankar De (ISB), Subrata Sarkar (IGIDR and ISB), Manpreet Singh (ISB) and Siddharth Vij (ISB)
Estimating regression models in panel datasets The object of this research is to improve upon the existing methods of estimation of autocorrelation structure of errors for an individual over time so that the regression coefficient estimates and their standard errors can be estimated more precisely than currently feasible. We also consider more general situations than the existing methods allow, such as when there are two or more random regressors in the presence of some non-random regressors (as is commonly encountered in empirical investigations). Research team: Sankar De (ISB), Mohit Dayal (ISB) Naveen Reddy (ISB) and Bhimasankaram Pochiraju (ISB)
Small and Medium Enterprises (SME) sector: financing and governance challenges In spite of its important position in the Indian economy, relatively little is known about the financing patterns, constraints and challenges of SME units in India. To obtain reliable data for research, CAF has conducted two surveys of SME units across India. Our findings indicate that the average SME unit in India faces credit rationing in both formal and informal markets. Research team: Sankar De (ISB) and Manpreet Singh (ISB)
Law, institutions, finance, and corporate growth in emerging markets, with a focus on India and China The thrust of this research is to examine the legal and business environments, financing channels and governance mechanisms of different types of firms in India, and compare them to those in other countries. The first paper from this research is now among the top ten downloads at Social Science Research Network (SSRN). It has been presented at many international research forums and business schools across the world. Research team: Franklin Allen (Wharton), Rajesh Chakrabarti (ISB), Sankar De (ISB), Jun Qian (Boston College), and Meijun Qian (National University of Singapore).
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