Mattu Centre for Research in Security Pricing and Corporate Finance

About the Centre

India is one of the world’s most prominent emerging financial markets and an increasingly important destination for global institutional capital. Despite its rapid growth, the market faces several structural challenges that set it apart from the major developed markets.

Business groups and state-owned enterprises, with their complex ownership and governance arrangements, dominate the corporate sector. The equity market liquidity is highly concentrated among the top 500 listed companies. A large fraction of capital market investments comes from investors whose capital is largely tied to the Indian market. The corporate bond market is yet to develop the depth and liquidity that a market of India’s scale requires. Corporate governance, in particular, remains an area where Indian markets have significant ground to cover relative to more developed financial systems.

These structural characteristics mean that analytical frameworks and empirical methods developed for mature markets often map poorly to the Indian context. Addressing them requires dedicated research infrastructure comprising India-specific databases and a broader research ecosystem that does not yet exist at the scale the market demands. Without such infrastructure, the capacity of academics, practitioners, and regulators to understand, price, and govern Indian financial markets remains severely constrained.

The Mattu Centre is conceived precisely to address this need. By building India- specific databases, fostering a community of researchers, and engaging with regulators and practitioners, the Centre aims to strengthen the analytical foundations upon which Indian financial markets can grow into a more transparent and globally integrated ecosystem.

International Linkages and Collaboration

The Centre is exploring collaborations with reputed academic centres of excellence in the world to advance its research program, including the development of databases and the dissemination of different research outcomes.

Activities

Research Databases

The Centre led by Finance & Accounting Area at IIMA aims to develop a set of databases grounded in academic framework to facilitate research in Indian markets. Such databases will promote more frequent and rigorous research about the Indian financial markets, deepening insights for academics, practitioners, regulators, and policymakers. In the first phase of the activities, the Centre intends to develop and maintain the following databases.

Historical Indian market performance

The history of the Indian equity markets dates back more than half a century. Despite the long existence of an active market, most of the databases on the performance of the Indian market are limited to the period from 1993. The unavailability of a longer documented history of the markets often prevents meaningful analysis of several aspects of the markets. For instance, analysis of the impact of less frequent shocks in the market, such as a major war or a great climate shock, is less understood without such a long period of data. Research from other equity markets shows that a key explanation for the risk premium earned in equity markets is compensation for extreme events in the economy.

In view of the value that can be created by documenting a longer history of the market, the Centre intends to develop a historical price index for the Indian market using archival data, extending the estimation of the long-run equity risk premium as far back as records permit.

Equity return factors

The variation in the return of equities has been proven to be better explained by a set of factors than a single factor model like Capital Asset Pricing Model (CAPM). A number of factors provide greater explanation for the equity returns, including

book-to-market value, momentum, size, etc.

A number of factors have been identified which offers a greater explanation for the variation in the return on different equities. Apart from the market, the prominent factors include:

• Factor based on market capitalisation of the stocks (known as the size factor)

• Scaled assets, profits, or cash flows that measure how low or expensive the price of a stock is relative to its fundamentals (a popular measure is the book-to-market ratio, known as the value factor).

• Cross-sectional momentum of the stocks based on past price history (momentum factor).

• Variation in the profitability across the firm (profitability factor).

• Investment intensity variation across firms (investment factor).

• The variation in liquidity of the stocks and liquidity risk.

The historical performance of different factors has been significantly contributing to research by both academics and practitioners. Academics routinely employ multivariate asset pricing models, including the return factors, to examine the power of different asset pricing models. Practitioners deploy them for developing new approaches for optimising asset allocation and for the performance evaluation of managed portfolios.

The Centre intends to extend the equity market factor database maintained by IIMA by including profitability, investments, liquidity, and other relevant factors.

Fixed income securities factors

Bond markets in India remain relatively underdeveloped, placing significant challenges in funding projects across the spectrum. The regulators have long regarded the development of bond markets as an essential pillar for making India a vibrant capital-raising market across the board. The centre will develop and maintain a dataset that explains the pricing of fixed-income securities in the Indian market, educating both investors and issuers about the pricing characteristics of debt securities. It will also allow academics engaged in research in the fixed-income markets to deepen their analysis.

Retail investor sentiment

Retail Investor sentiment is known to have a significant role in explaining the variation in returns, both across assets and over time. Research has tried to identify investor sentiment by deploying several different approaches, including historical price and other market data, investor surveys, and non-market indicators such as social media activity. One of the popular approaches is the elicitation of investor expectations about future return and risk through the survey of retail investors. One of the popular surveys in the US is the American Association of Individual Investors (AAII) Sentiment Survey. The survey database has been widely employed in academic and practitioner research in understanding the characteristics of investor behavior. The Centre is developing a database of investor perceptions involving expected returns and risk through a systematic survey of retail investors in India.

CAPE for Indian market

The cyclically adjusted PE ratio developed by Robert Shiller (CAPE) is known to be a contrarian indicator of market performance and has been widely employed across the world.6 Centre shall maintain the CAPE database with adjustments to suit the Indian market characteristics.

Indian mutual fund database

Understanding the performance of managed portfolios by institutions was important to any financial market. However, the ability to develop insightful analysis is challenged by the availability of reliable databases. One key problem that challenges the performance evaluation of mutual funds is a database that is free from survivorship bias. The Centre plans to develop a survivorship-bias-free database for analysing the Indian mutual fund industry.

Databases on corporate governance in India

With its focus on corporate governance of Indian firms, the Centre aims to develop several indices and databases that track the quality of governance of Indian firms. The Centre is at the initial stage of discussions for launching databases in the following aspects of corporate governance:

• A tracker of corporate governance based on the disclosure in annual reports.

• Index of audit quality and auditor quality based on publicly available data.

• A dashboard indicating voting and disagreement of resolutions brought about by both

management and shareholders.

Over a longer horizon, the Centre targets to develop databases that tracks board quality and corporate governance standards across Indian firms.

Conferences, Workshops, and Seminars

The Centre will undertake various activities to disseminate knowledge grounded in research. These events will seek the active participation of academics, practitioners, regulators, and policy-makers.

Annual Research Conference

A focused conference featuring research on Indian financial markets, with a set of high-quality papers for active discussion among leading academics and practitioners. The inaugural research conference by the Centre is targeted for the academic year 2027.

Quarterly Workshop

The quarterly workshop shall be centered on a specific research theme where the Centre has made a significant contribution either by disseminating a research output or by releasing a new database.

• PhD workshop: The PhD workshop is aimed at strengthening the research skills of promising Indian PhD students [date to be announced]

• Young Indian Scholar Workshop: The Young Indian Scholar Workshop is meant for young academics who are focused on research in Indian financial markets [date to be announced].

• PhD Summer School: The PhD summer school organised in collaboration with the Finance and Accounting Area at Indian Institute of Management, Ahmedabad shall focus on improving the preparedness of students to conduct research in financial markets [date to be announced].