Advertisement and Promotion in Business

Abstract With the increase in competition among different businesses across all industries, it is vital for companies to ensure that they implement ideal promotional strategies to maintain their competitiveness. This paper presents an in-depth analysis on several aspects of business advertisement and promotions. It addresses the scope of marketing strategies, which covers the process of communication in advertisement, the organization of the advertisement industry in the United Kingdom, the regulation of the industry and the current trends in advertising. It also covers the concept of below-the-line advertisement and suggests the promotional strategies that can be used by Pringles, a well renowned snack brand. Introduction Advertisement and promotion play a vital role in the marketing of products and services of any company by increasing brand awareness and attracting customers (Shimp & Andrews, 2013). It is one of the four components of the 4Ps of marketing, which comprise of product, price, promotion and place (Pride, 2013). Whereas there are different approaches to advertising and promotion, they all have the main objective of communicating about what companies have to offer to their target clients (Percy & Rosenbaum-Elliott, 2012). With the ongoing increase in competition across all industries, companies that fail to advertise or promote their products and services risk losing their competitive edge regardless of how proper the other elements of the marketing mix are (Reynolds & Lancaste, 2013). This paper covers different issues of advertisement and promotion. These include the marketing communications’ scope and below the line advertisement approaches that can be used to promote Pringles, one of their products. It also designs a plan for an integrated promotional strategy for Pringles. Task 1 – Scope of Marketing Communications1. Explain the communication process that applies to advertising and promotion.Communication in advertisement and promotion aims to ensure that that the messages that businesses intend to pass to their consumers are effectively relayed (Shimp & Andrews, 2013). There are different steps through which these messages undergo before arriving to their target audiences. In promotion and advertisement, the sender – in this case, the advertising company – encodes the message and relays it through a transmission device (Wharton, 2013). Encoding is the creative creation of cues that can either be verbal or non-verbal that will pass the intended message to customers in the most effective manner and also attract the highest possible attention among the target customers (Reynolds & Lancaste, 2013). After the message has been encoded, ideal transmission devices or avenues are used to pass the message (Wharton, 2013). With the different customer segments being targeted by companies, it is important to select the most ideal avenue through which the advertisement can be passed (Pride, 2013). The message is then decoded by the receiver, where it will trigger different actions in response to the advertisement, which include making purchases of the advertised products or services (Reynolds & Lancaste, 2013). Whereas companies expect the communication processes of advertisements to lack barriers, there are several that may limit the attainment of the intended advertisement objectives (Wharton, 2013). One of these is the presence of many other adverts by competing companies that may divide the attention of target consumers this is mainly referred to as clutter (Kaser, 2012).2. Explain the organisation of the advertising and promotions industry.The advertising and promotions industry com prises of different entities. These include advertisers, advertising agencies, media organizations and external facilitators (Friedlein, 2014). The roles played by all these parties contribute towards the success of the industry. To ensure effectiveness of this industry, different countries have different approaches of managing these involved parties (O’guinn et al., 2011). In the United Kingdom and Europe, there are different bodies that are involved in the running of the industry. These include the European Association of Communications Agencies (EACA), and the Promotional Marketing Council (PMC) (Warc, 2014). EACA represents media agency associations and full-service advertising across Europe (EACA, 2014). It is based in Brussels, Belgium, and focuses on the promotion for responsible effective and honest advertisement. The organisation also promotes high levels of professionalism and fosters close cooperation among different advertisers, agencies and media outlets in Europ e. PMC, on the other hand, represents the sales promotion industry. Some of the parties represented include suppliers, clients and agencies across several countries in Europe (Warc, 2014).3. Assess how promotion is regulated.Regulation involves the creation or certain rules and regulations to govern different activities in advertisement and promotion. In the United Kingdom, an advertising self-regulatory system for non-broadcast advertising was set up in UK in 1961. This step was taken to ensure that advertisements are responsible and achieve the purpose of making customers aware of products and their repurchase of the products. The UK regulates the promotion industry by using a combination of practice and legislation codes (Advertising Standards Authority, 2014). There are two regulatory committees that create, revise and monitor advertising codes. These are the Broadcast Committee of Advertising Practice (BCAP) and the Committee of Advertising Practice (CAP). The BCAP code creates broadcast advertising rules while CAP creates rules for non-broadcasting advertising, direct marketing and sales promotion (Farrell & Gordon, 2012). These rules are enforced by the Advertising Standards Authority (ASA). With the changes that are always taking place in advertising, these rules are regularly revised to increase effectiveness (Kaser, 2012). However, keeping up with this pace is quite challenging because of the increase in advertisement avenues that has been made possible by technological advancements. As a result, increasing numbers of customers are falling prey to advertisers that advertise inexistent or poor quality products (Cho et al., 2014).4. Examine current trends in advertising and promotion, including the impact of ICT.The current trends in advertising and promotion have majorly been influenced by the increase in the use of the internet and social networking among target customers, which has largely been as a result of ICT development (Friedlein, 2014). There are various internet related trends in product advertising and promotion. These trends include; social media, online display advertising and mobile advertising. Advertisements on the social media, such as Facebook and Twi tter, are on the rise and are referred to as sponsored content (Seth & Kapoor, 2014). Companies are taking advantage of the growing number of people using these avenues because in total, there are approximately 2 billion people signed up to different social media platforms (Tuten & Solomon, 2012). Online display marketing is on the rise, and involves the advertisement of company websites on other websites that target consumers frequently use (Kaser, 2012). According to Persaud and Azhar (2012), an increase in the use of smartphones has also given rise to internet mobile advertising. This is where advertisers reach consumers personally through platforms, such as social media or sending links to company websites, in the form of text messages (Persaud & Azhar, 2012). Whereas these developments provide a convenience of reaching a wide range of clients in a short time and on a smaller budget, there are also different associated demerits (Friedlein, 2014). One of these is the information risk that customers and companies may be prone to because of hacking (Cho et al., 2014). Social media has been regarded by some researchers as one of the fastest avenues through which information passes. Thus, any mistake by a company that may tarnish its reputation can be detrimental to its brand (Tuten & Solomon, 2012). Task 3: Primary techniques of below-the-line technique of sales promotion1. Explain primary techniques of below-the-line promotion and develop a BTL campaign for the brand, â€Å"Pringles†Below-the-line promotionBelow-the line advertisement is a promotional strategy that tends to use other mediums apart from the typical ones like the internet, broadcast, print and billboards (Kaser, 2012). Many companies in the present-day business environment utilize this strategy alongside above-the-line and through-the-line advertisement (Reynolds & Lancaste, 2013). One of the main attributes of this approach to advertisement is that it is less expensive. However, many companies combine this with above-the-line promotions so as to maintain a better market position, below-the-line promotion being just as complement (Gautam, 2013). Several below-the-line advertisement techniques are discussed hereunder. Field marketing or promotion: It is a process through which salespeople target customers on a one-on-one basis with the aim of promoting certain products and services (Stone & Desmond, 2007). One of the advantages of this approach is that it provides customers with a close interaction with the product being promoted and the salesmen. However, this is time consuming and some customers may not be quite welcoming to the salespeople (Sigala, 2010). The use of coupons: this below the line approach to promotion involves handing coupons to prospective purchasers of commodities and offering incentives or discounts to attract customers, especially those who are price-sensitive (Wharton, 2013). Given that such approaches often offer product at reduced prices for a short duration, there is always a risk of reduced sales when the company resumes its original prices (Kumar & Rajan, 2012). Loyalty programs: These are packages that offer rewards to the frequent buyers of commodities due to their loyalty to the retail outlets (Grewal et al., 2011). Such programs are common in the airline industry, where frequent flyers of a given airline numbering a specified number of flights are awarded for their loyalty in different ways, which may also include free flights. These programs are however more ideal for customers with easy accessibility to the company products (Kaser, 2012).A below-the-line campaign for PringlesPringles is a potato and wheat manufactured snack owned and run under the Kellogg Company (Pringles, 2014). Below-the-line advertisement can be used to compliment the current promotional strategies used. One of the below-the-line approaches that can be used to market Pringles is the field promotion or field marketing approach. To effectively implement this promotional strategy, it is vital for the company to recruit salespeople that have the experience and skills needed to enable them convince people they have never met before to choose the Pringles over competing products in the market (Kaser, 2012). Small samples ought to be distributed for free or be sold at a lower price. Considering that the company mainly targets teenagers and students (Gillespie & Hennessey, 2010), it is advisable for the company to use younger salespeople who are more aware of how to approach and appeal to teenagers. The most ideal places that promoters of this product can target are those with high population of teenagers, like schools, colleges or recreational parks. Though this marketing approach provides an excellent avenue for building a relationship between the target customers and the brand, companies have to invest heavily in training salespeople or promoters to enable them deal with customers of diverse tastes and backgrou nds (Sigala, 2010).2. Evaluate other techniques that can also be used in this BTL campaign.Apart from the above below-the-line approach that can be used by Pringles, there are several other methods that may be adopted to boost sales and promote the product. They are examined below. Pringles can use the Intercept method, where trained sales personnel are positioned at retail outlets besides the shelves holding Pringles in retail stores and supermarkets (Stone & Desmond, 2007). Their main role is to persuade incoming buyers into the stores to purchase Pringles by highlighting their advantages over other competing products. Whereas this approach can increase the sales for the company, it has been criticized for causing impulse buying among customers (Pride, 2013). Sponsorship is also an ideal below the line promotional strategy that can be used by Pringles. This is whereby the company supports events and activities through provision of funds and other resources that are valuable to the success of the event (Woisetschlager & Michaelis, 2012). For Pringles, this strategy can be implemented by sponsoring sports for schools and youth concerts. Awareness of the company or products can be increased by ensuring by printing T-Shirts, caps or any other apparel to be worn by those attending the event. Even with this convenience that the strategy offers to customers, it can be quite cost intensive for the company depending on the size or magnitude of the event being sponsored (Lee et al., 2012). This may have an adverse impact on the company’s return on investment. Task 4: Plan Integrated Promotional Strategies1. Follow an appropriate process for the formulation of a budget for this integrated promotional strategyAn integrated promotional strategy refers to an approach to promotion where a company uses different avenues to and tools to increase the awareness of products (Kaser, 2012). This section presents a plan for a promotional strategy that can be used to market Pringles. Even with the current success that it enjoys across the markets that it operates (Gillespie & Hennessey, 2010), there is still a need for the company to penetrate more in the market and further increase its market share. To implement a successful promotional strategy, it is vital for the company to identify the resources or activities that will be involved. After they are identified, the appropriate budgetary allocation will be done to facilitate the strategy (Reynolds & Lancaste, 2013). The avenues that will be used in this promotion strategy are TV commercials, billboards and online advertisement through social media outlets. The budget is summarized as below. Promotional TechniquesBudget allocation TV commercials?1 million Billboards?100,000 Social media promotion YouTube video advertisements?50,000 Facebook?50,000 Twitter?50,000 Total?1.25 million 2&3: Carry out the development of a promotional plan for the Pringles and plan the integration of promotional techniques into the promotional strategy for PringlesThe table above represents the promotional techniques that will be used in the promotion of Pringles. TV commercials will be used by airing advertisements of the product on channels that air programs that are mostly viewed by the company’s target customers, who are teenagers and the youth (Saxena, 2010). The most ideal channels on which to air these advertisements are music or sports channels. Billboards will be effective if they are located in areas that are densely populated and are located close to outlets of the products. With an increasing number of people who have signed up on Facebook and Twitter social networks, advertising products on these sites also increases their visibility among the target audience (Tuten & Solomon, 2012). It also enables the company to actively engage with the customers that it is tar geting. Thus, it will be imperative for Pringles to consider utilizing these avenues for promotion.4. Appropriate techniques for measuring campaign effectivenessThere are different approaches that can be used by companies in measuring the effectiveness of their promotional campaigns. One of these is the amount of feedback from customers. This is usually mainly in form of inquiries through different avenues about the product being marketed (Pride, 2013). When inquiries are high, it means that the advertisement strategy was effective, and vice versa. Another approach that can be used is the estimation of sales prior to and after the launch of the promotional campaign or the return on investment (ROI) (Kaser, 2012). Successful promotional campaigns ought to result in an increase in sales levels of the company and create revenues that surpass the investment that was put in the promotional activity. For social media advertisements, tools such as SentiStrength can be used to assess the re ception of consumers to the advertisements. SentiStrenth is a sentiment measuring tool that evaluates the level of positivity or negativity of short texts that are mainly used in commenting on social media sites (SentiStrength, 2014). Conclusion Advertisement and promotion are vital components of the marketing mix. Some of the roles that they play include increasing of awareness among target customers about a company’s products and attracting new customers. This paper has addressed different issues that relate to this component of marketing. Under the scope of marketing communications, the paper has explained how the communication works process in promotion. It has also discussed how the organisation and regulation of the advertisement industry in the United Kingdom. The concept of below-the-line advertisement and an integrated promotional strategy that can be used to market Pringles have also been presented. For companies that intend to maintain their competitiveness in the market and attract a wide range of customers, it s vital for them to ensure that their promotional strategies are relevant to their target audiences. Whereas this paper has provided an in-depth understanding on the concepts of advertising and prom otion, in future, primary research can be incorporated, with members of the marketing department and a section of its target customers as respondents. References Advertising Standards Authority, 2014. About Regulation. [Online] Available at: http://www.asa.org.uk/About-ASA/About-regulation.aspx [Accessed May 2014]. Cho, S., Huh, J. & Faber, R.J., 2014. The influence of sender trust and advertiser trust on multistage effects of viral advertising. Journal of Advertising, 43(1), pp.100-11. EACA, 2014. About Us. [Online] Available at: http://www.eaca.eu/ [Accessed 31 May 2014]. Farrell, T. & Gordon, R., 2012. Critical social marketing: investigating alcohol marketing in the developing world. Journal of Social Marketing, 2(2), pp.138-56. Friedlein, A., 2014. Six trends in advertising you need to know for 2014. [Online] Available at: http://www.marketingweek.co.uk/opinion/ashley-friedlein/six-trends-in-advertising-you-need-to-know-for-2014/4009135.article [Accessed May 2014]. Gautam, A., 2013. A study on (below the line) promotion strategies of telecom industry in western (Up) circle (India) with special reference to Reliance Communication. European Journal of Business and Management, 5(22), pp.74-79. Gillespie, K. & Hennessey, ?.D., 2010. Global Marketing. Mason: Cengage Learning. Grewal, D. et al., 2011. Innovations in retail pricing and promotions. Journal of Retailing, 87, pp.43-52. Kaser, K., 2012. Advertising and Sales Promotion. Mason, USA: Cengage Learning. Kumar, V. & Rajan, B., 2012. Social coupons as a marketing strategy: a multifaceted perspective. Journal of the Academy of Marketing Science, 40(1), pp.120-36. Lee, D.-C., Hung, L.-M. & Chen, M.-L., 2012. Empirical Study on the Influence among Corporate Sponsorship, Organizational Commitment, Organizational Cohesiveness and Turnover Intention. Journal of Management and Sustainability, 2(2), pp. 43-53 Mishra, P., 2009. Sales Management: Keys to Effective Sales. New Delhi: Global India Publications. O’guinn, T., Allen, C. & Semenik, R., 2011. Advertising and integrated brand promotion. Mason: Cengage Learning. Percy, L. & Rosenbaum-Elliott, R., 2012. Strategic Advertising Management. Oxford: Oxford University press. Persaud, A. & Azhar, I., 2012. Innovative mobile marketing via smartphones: are consumers readyMarketing Intelligence & Planning, 30(4), pp.418-43. Pride, W.M., 2013. Marketing 2014, 17th ed. Mason: Cengage Learning. Pringles, 2014. Products. [Online] Available at: http://www.pringles.co.uk/products [Accessed 31 May 2014]. Reynolds, P. & Lancaste, ?G., 2013. Marketing. New Jersey: Routledge. Saxena, R., 2010. Marketing Management 4E. London: McGraw-Hill Education. SentiStrength, 2014. Sentiment Analysis. [Online] Available at: http://sentistrength.wlv.ac.uk/results.php?text=Luois+Vuitton+have+nice+clothes+but+i+hate+their+prices&submit=Detect+Sentiment [Accessed 19 May 2014]. Seth, S. & Kapoor, K., 2014. Fostering Creativity & Innovation In Marketing Communication through Social Media. The International Journal Of Business & Management, 2(1), pp.19-24. Shimp, T. & Andrews, J.C., 2013. Advertising promotion and other aspects of integrated marketing communications. Mason: Cengage Learning. Sigala, M., 2010. The Handbook of Field Marketing: A Comprehensive Guide to Understanding and Outsourcing Face-to-face Direct Marketing. Journal of Product & Brand Management, 19(1), pp.67-68. Stone, M.A. & Desmond,J ?., 2007. Fundamentals of Marketing. London: Routledge. Tuten, T.L. & Solomon, M.R., 2012. Social Media Marketing. New York: Prentice Hall. Warc, 2014. Promotional Marketing Council. [Online] Available at: http://www.warc.com/ContentandPartners/PromotionalMarketingCouncil.info [Accessed May 2014]. Wharton, C., 2013. Advertising as Culture. Bristol: Intellect. Woisetschlager, D.M. & Michaelis, M., 2012. Sponsorship congruence and brand image: A pre-post event analysis. European Journal of Marketing, 46(3/4), pp.509-23.

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Managing in the service environment - Essay Example The customers ought to be satisfied with what the service providers have. The service providers should be able to keep customers coming back through the services provided (Martin et al 4). Customer service dimensions are crucial in ensuring that there is satisfactory customer service from the service provider to the customers. One major dimension is known as desired service. Desired service entails a blend of what the customer believes can be done and should be done. This draws the hope and expectation of the customers from the service providers. The procedural dimension comprises of systems and procedures that are important in the delivery of products and services. Conversely, personal dimension explains how service providers use their attitudes; behaviors and verbal skills interact with customers. This indicates that there is proficiency in the procedural service, but the personal dimension is weak. Basically, the approach tells the customer that he /she is a ‘number’ in which the service provider is there to process (Martin et al 11). This indicates a service that is extremely personal, but does not have procedural constituency. The approach communicates to the customer that the service provider is trying hard although they are not sure of what they are doing. It is the best approach as it represents quality customer service at both personal and procedural dimensions. It communicates to the customer as having the knowledge to handle its issues through care, and delivery (Martin et al 11). Employee empowerment is important in ensuring that they are in a position to make decision on behalf of the employee in terms of service provision. Moreover, it makes the employee have a sense of ownership, responsibility and to serve customer as per the standards of a given service provider (Martin et al 12). Anticipation entails being able to predict the behavior of

Principles, Practices, and Prospects of Nuclear Energy Annotated Bibliography

Principles, Practices, and Prospects of Nuclear Energy - Annotated Bibliography Example As the paper outlines, the books  Nuclear energy: Principles, practices, and prospects by D. Bodansky establish that the need for nuclear energy arises from the worldwide diminishing levels of natural fossils and other power producing utilities, which may render industrial revolution into a stable state. Bodansky relatively expounds that rapid population growth steered power consumption; thus, the dilemma pushed for a mandatory energy alternative source throughout the world (Bodansky, 2004). The writer argues that the scientific discoveries targeted to implement alternative sources of energy that would ensure constant production in the industrialized world. The writer emphasizes the production of nuclear energy over other sources, for example, crude, natural gas, and coal as it is a carbon-free emitting compound. Nuclear energy gained acceptability throughout the superpower countries that learned of the importance of producing the alternative energy source in stimulating economic g rowth, and significance in the gross domestic product (Bodansky, 2004). Bodansky elaborates on the intensive use of the carbon-free energy but relates the production as dependent on the radiant uranium neutron and electron reacting to produce energy. The author stipulates that the chemical reactions involving the neutrons and electrons appear in a sequence of reactions called the fission process (Bodansky, 2004). The writer depicts that possible emissions to the space range in millions of isotopic compounds and the effects would ultimately stimulate global warming (Bodansky, 2004). The author elaborates that, his arguments base on the following facts; nuclear waste disposal turns a tricky issue throughout the manufacturing countries as it is non-biodegradable, thus becoming harmful to the flora and fauna (Bodansky, 2004).

A newspaper invites young people to write articles about television Coursework

A newspaper invites young people to write articles about television programmes they either loathe or love. Write the piece you would send to the newspaper - Coursework Example You can tell which series it is from the opening sequence. Actually I can tell what series it is from the extent of Chandler’s physical decline. He starts out quite fit and degenerates into an increasingly zombified, staring-eyed mess. Apparently he had to fight some addiction demons in real life. My theory is that working with this bunch gradually eroded his sanity. I only watch Friends because it provides the ideal opportunity for venting all my pent-up frustrations about life. For me this programme has all the charms of an emotional punchbag. I look at the smug, silly faces and enjoy an imaginary workout in the boxing ring with each one in turn. Except Chandler. Something worries me about Chandler. It is a fact that every viewer on the planet, unfortunately, has a soft spot for one of the six characters. It’s a kind of post-modern Rorschach test. The one you identify with reveals your true nature. I never did see the attraction of Friends, and even now, almost a decade after the last series gasped its way onto our screens, I don’t get it. I mean look at the stereotypical gender roles. The girls are all mad: Rachel is sex-mad, Monica is neurotic and has issues with food, issues with hygiene, issues with men, and a seriously weird relationship with her brother. And Phoebe. Well, Phoebe is the poster girl for cloud-cuckoo land. â€Å"Smelly cat, smelly cat†¦You smell like something dead†¦Ã¢â‚¬  What was that all about? I hope the producers are insured against all the law suits that are bound to follow from children thinking that this is acceptable behaviour in an adult human being. And the boys are not much better. Would you go out with any of them? The show has a formula that is repeated ad nauseam until finally the characters just show up on the set and the dialogue writes itself. In fact it is so predictable that a ten year old could write it and nobody would be any the wiser. Joey and Chandler have little boy-games in their flat, while Rachel

Improving Productivity Essay Example for Free

Improving Productivity Essay To talk about improvement we need to know first what productivity is in a technical view as a work application. As Montano said, productivity is the proportion that is achieved between the made product or proportionate service and the inputs that have intervened in the accomplishment of this product or service[1]; a measure of how efficiently an organization converts inputs into outputs. Taking into account its definition, it is important to know how to improve the productivity in companies. The specialization and division of the work are some of them. These allow major knowledge of the work, increase of the quality and therefore major performance of the workman; in addition there is a better control of the work, a decrease of mistakes and wastes and enables delegation. Mechanization saves time of manufacture, increases number of working hours, eliminates costs of training compensations and rewards, etc. Standardization allows a decrease of costs of maintenance, the scale and scope production. As scientific management (developed by Taylor) arguments, nonstandard labor practices are too expensive and wasteful; their approach was to homogenize the labor element of operation: standard methods and standard time. Productivity improvement involves methods study, with flowcharting as operator-machine time chart. Methods study, aimed at improving as well safety and ease of performing the work; ergonomics and the well design of distribution of plant are important issues in productivity. Effective communication clarifies the objectives of the whole organization and therefore allows saving time. Training, education, planning and coordinating activities form effective work. What is very important is to integrate as many employees as possible into this process. As Leon Ho express â€Å"Procrastination is the biggest time thief of all! † By identifying the reasoning behind procrastination issues, solutions can be found, such as breaking larger projects down into smaller pieces, scheduling some tasks for first thing in the morning so they are done, and delegating any tasks that are so routine they feel like a waste of your time[2]. Without a deadline, people tend to put things off. A time standard acts like a deadline, helping to keep people motivated. In overall reducing cost and waste, analysis methods that are made especially for areas of the organization, quality control and technology are the most known ways to improve productivity in any firm. No matter what type organization is, all search improvement in productivity that obliges better methods and equipments. However, improving productivity should be permanent, alive and part of the organization at all levels[3]. Now, new productivity needs to be broad and integrated. Bibliography MONTANO,Agustin. Administracion de la produccion.

Stock Market Volatility Around Market Shock 2005-09

Stock Market Volatility Around Market Shock 2005-09 Stock Market Volatility around market shocks event analysis during 2005-2009 ACKNOWLEDGEMENT The Project titled Stock Market volatility around market shock event analysis during 2005-09 is an effort to throw light on Performance Analysis. I have completed this project based on research, under the guidance of name of faculty, my faculty guide. I owe enormous intellectual debt to her as she augmented my knowledge in the field of volatility around market shocks and helped me learn about the topic and gave me valuable insight into the subject matter. My increased spectrum of knowledge in this field is the result of her constant supervision and direction that has helped me to absorb relevant and high quality information. I would like to express my profound gratitude towards COLLEGE NAME for giving me the opportunity to undertake the above research. Last but not the least, I feel indebted to all those persons and organizations which have helped me directly or indirectly in successful completion of this study. DECLARATION I Ghayasuddin a student of MBA of College Name respectively hereby declare that the Project Report on Stock Market volatility around market shock event analysis during 2005-09 is the outcome of my own work and the same has not been submitted to any other University/Institute for the award of any degree or any Professional diploma. OBJECTIVE OF THE STUDY To find out the stock market volatility. To analyze the volatility measure To understand the stock market and its importance To find out the reasons behind the downfall. EXECUTIVE SUMMARY A common problem plaguing the low and slow growth of small developing economies is the swallow financial sector. Financial markets play an important role in the process of economic growth and development by facilitating savings and channeling funds from savers to investors. While there have been numerous attempts to develop the financial sector, small island economies are also facing the problem of high volatility in numerous fronts including volatility of its financial sector. Volatility may impair the smooth functioning of the financial system and adversely affect economic performance. Similarly, stock market volatility also has a number of negative implications. One of the ways in which it affects the economy is through its effect on consumer spending (Campbell, 1996; Starr-McCluer, 1998; Ludvigson and Steindel 1999 and Poterba 2000). The impact of stock market volatility on consumer spending is related via the wealth effect. Increased wealth will drive up consumer spending. However, a fall in stock market will weaken consumer confidence and thus drive down consumer spending. Stock market volatility may also affect business investment (Zuliu, 1995) and economic growth directly (Levine and Zervos, 1996 and Arestis et al 2001). A rise in stock market Volatility can be interpreted as a rise in risk of equity investment and thus a shift of funds to less risky assets. This move could lead to a rise in cost of funds to firms and thus new firms might bear this effect as investors will turn to purchase of stock in larger, well known firms. While there is a general consensus on what constitutes stock market volatility and, to a lesser extent, on how to measure it, there is far less agreement on the causes of changes in stock market volatility. Some economists see the causes of volatility in the arrival of new, unanticipated information that alters expected returns on a stock (Engle and Ng, 1993). Thus, changes in market volatility would merely reflect changes in the local or global economic environment. Others claim that volatility is caused mainly by changes in trading volume, practices or patterns, which in turn are driven by factors such as modifications in macroeconomic policies, shifts in investor tolerance of risk and increased un certainty. The degree of stock market volatility can help forecasters predict the path of an economys growth and the structure of volatility can imply thatinvestors now need to hold more stocks in their portfolio to achieve diversification(Krainer, J, 2002:1). This case is more serious for small developing economies like Fiji who is attempting to deepen its financial sector by developing its stock market. Unlike mature stock markets of advanced economies, the stock markets of less developed economies like Fiji began to develop rapidly only in the last two decades and are sensitive to factors such as changes in the levels of economic activities, changes in the political and international economic environment and also related to the changes in the macro economic variables. Therefore, in this paper, we examine if Fijis Stock market is volatile and if so, then what is the role of interest rate being one of the most important macroeconomic variables on the volatility of stock returns. This article benefits from developments in the measurement of volatility through econometric techniques. Here, the regime-switching- ARCH model introduced by Engle (1982) and its extension, the GARCH model, (Bollerslev, 1986) is used to estimate the conditional va riance of Fijis daily stock return from January 2001 to December 2005. This method allows for an objective determination of the presence of volatility. The results of estimates of stock return volatility is then related to changes in the interest rates. The second section of the paper provides an overview of Fijis stock market. The third section of the paper provides an exposition of the methodology used in this study. The fourth section provides a summary of the results and its discussion. The last section provides a summary and conclusion. INTRODUCTION TO THE INDIAN ECONOMY India has struggled financially since independence, experiencing slow economic growth and economic setbacks due to climatic extremes or political disturbances. The country has been gradually transforming its economic base from agrarian to industrial and commercial. Under British rule in the 19th century, Indias cottage industries and thriving trade were virtually destroyed to make way for European manufactured goods, paid for by exports of agricultural products such as cotton, opium, and tea. Beginning in the late 19th century a modern industrial sector and an extensive infrastructure of railways and irrigation works were slowly built with British and Indian capital. Nevertheless, Indias economy stagnated during the last 30 or so years of British rule. At independence in 1947 India was desperately poor, with an aging textile industry as its only major industrial sector. Economic policy after independence emphasized central planning, with the government setting goals for and closely regulating private industry. Self-sufficiency was promoted in order to foster domestic industry and reduce dependence on foreign trade. These efforts produced steady economic growth in the 1950s, but less positive results in the two succeeding decades. By the early 1970s India had achieved its goal of self-sufficiency in food production, although this food was not equally available to all Indians due to skewed distribution and occasional shortfalls in the harvest. In the late 1970s the government began to reduce state control of the economy, making slow progress toward this goal. By 1991, however, the government still regulated or ran many industries, including mining and quarrying, banking and insurance, transportation and communications, and manufacturing and construction. Economic growth improved during this period, at least partially as a result of development projects funded by foreign loans. Indias low average growth rate up to 1980 was derisively referred to as the Hindu rate of growth, because of the contrasting high growth rates in other Asian countries, especially the East Asian Tigers. The economic reforms that surged economic growth in India after 1980 can be attributed to two stages of reforms. The pro-business reform of 1980 initiated by Indira Gandhi and carried on by Rajiv Gandhi, eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. The economic liberalisation of 1991, initiated by then Indian prime minister P. V. Narasimha Rao and his finance minister Manmohan Singh in response to a macroeconomic crisis did away with the Licence Raj (investment, industrial and import licensing) and ended public sector monopoly in many sectors, thereby allowing automatic approval of foreign direct investment in many sectors. Since then, the overall direction of liberalisation has remained the same, irrespective of the ruli ng party at the centre, although no party has yet tried to take on powerful lobbies like the trade unions and farmers, or contentious issues like labour reforms and cutting down agricultural subsidies. Liberalization in India paved the way for lots of foreign companies to come and setup heir base in India and for investors across the globe to invest money in Indian stock Market. Buoyant Indian Economy really raised eyebrows of many and investment in India keeps on surging high year after year touching new height. Since liberalization the foreign investors are on a spree of investment in India both in the form of FDI and FII. Stock Exchange being the only route for FIIs to come into India has been has been spearheading the task of giving investors a bright picture of the economy leading to brining more and more investment into the state. Hence, the vital role of Stock Exchange and the association of Stock Exchange with Foreign Investment can not be undermined. In the later part of the study, we will look into the details of how the Stock Exchange is associated with FIIs and vice versa.   ABOUT STOCK MARKET AND STOCK EXCHANGES A stock exchange or bourse is a corporation or mutual organization which provides the facilities for stock brokers to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities, as well as other financial instruments and capital events including the payment of income and dividends. In other words, Stock Exchanges are an organised marketplace, either corporation or mutual organisation, where members of the organisation gather to trade company stocks and other securities. The members may act either as agents for their customers, or as principals for their own accounts. Stock exchanges also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerised. The trade on an exchange is only by members and stock broker do have a seat on the exchange. The securities traded on a stock exchange include shares issued by companies, unit trusts and other pooled investment products as well as bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only; a stock broker is said to have a seat on the exchange. A stock exchange is often the most important component of a stock market. There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. Increasingly all stock exchanges are part of a global market for securities. 200 years ago in front of Trinity church in East Manhattan in U.S oldest stock exchange called New York stock exchange emerged, when there were no paper money changing hands and there was not even the idea of stock, people trade silver for papers saying they owned shares in cargo .The trade flourished. During American Revolution, the colonial government needed money to fund its wartime operations. By selling bonds they did this. Bonds are pieces of paper a person buys for a set price, knowing that after a certain period of time; they can exchange their bonds for a profit. Along with bonds, the first of the nations bank started to sell parts or shares of their own company to people in order to raise money. Thus they sell the part of the company to whoever wanted to buy it. This led to the emergence of the modern day stock market. The concept of stock markets came to India in 1875, when Bombay Stock Exchange (BSE) was established as The Native Share and Stockbrokers Association, a voluntary non-profit making association. BSE is the oldest in Asia. Presently India has about 10,000 listed companies, the largest number of listed companies in the world. Stock exchanges in India can be categorized as: 1) Voluntary Associations such as Bombay, Indore and Ahmedabad, 2) Public limited companies such as Calcutta and Delhi, and 3) Guarantee companies such as Hyderabad, Madras and Bangalore. Besides BSE, Indias other major stock exchange is National Stock Exchange (NSE) that was promoted by leading financial institutions and was established in April 1993. Today, these global stock exchanges have become premier institutions and are highly efficient, computerized organizations that have fostered the growth of an open, global securities market. Today India boasts 23 regional Stock Exchanges along with BSE and NSE. RESEARCH METHODOLOGY The research has been done by selecting the companies which are the representative of a particular sector on the basis of overall market capitalization, stocks having the highest liquidity and turnover both on the NSE and BSE. A caution was thus taken and by thorough approach the best companies were selected so as to portray a genuine picture of the sector. With the help of SPSS Package and using the quantitative techniques, the statistical analysis has been done. The following analysis has been done for all the 8 companies: Fundamental analysis. Future growth and earnings analysis. Statistical analysis. Technical analysis. ROLE OF STOCK EXCHANGES IN THE ECONOMY The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. Mobilising Savings for Investment When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilised and redirected to promote commerce and industry. Redistribution of Wealth By giving a wide spectrum of people a chance to buy shares and therefore become part-owners of profitable enterprises, the stock market helps to reduce large income inequalities because many people get a chance to share in the profits of business that were set up by other people. Improving Corporate Governance By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders. It is evident that generally, public companies tend to have better management records than private companies. Creates Investment Opportunities for Small Investors As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides an extra source of income to small savers. Government Raises Capital for Development Projects The Government and even local authorities like municipalities may decide to borrow money in order to finance huge infrastructure projects such as sewerage and water treatment works or housing estates by selling another category of shares known as Bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them. When the Government or Municipal Council gets this alternative source of funds, it no longer has the need to overtax the people in order to finance development. Barometer of the Economy At the Stock Exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability. Therefore the movement of share prices can be an indicator of the general trend in the economy. With countries moving away from socialistic approach and towards globalization of their economies, the role and importance of Stock Exchanges has gone up considerably. Today Stock Exchanges   depict the financial position of the economy of a country. INVESTMENST SCENAREO In closed economies only the Govt. has the sole responsibility and discretion of investment in various projects in the country. No private parties were allowed to invest in any venture. However, countries where mixed economy exist are liberal to the extent of giving permission to some private parties for investment in some selected sectors. However, countries which adopted globalization made their policies liberal enough to give private players permission to invest and run in any sector of their wish. Globalization has made the world boundary less where free flow of labour, capital exists among member countries. Interdependence among countries has given the drive a real momentum. Seeing the robust growth that some of the Asian countries registered really stunned the other nations which had closed economy. These nations which adopted globalization being the first runners were termed as Asian Tigers. Many followed the suit. Few countries followed the path of economic reforms with an anticipation of the prospective growth while the others due to some economic compulsions. A few countries like India were in real soup with acute financial crisis and were not in a position of running the socialistic approach anymore. A balance of payments crisis at the time opened the way for an International Monetary Fund (IMF) program that led to the adoption of a major reform package. It went ahead with globalization and reform process in a step by step approach. Countries realizing that only domestic investments and resources can not be relied upon for rapid growth in industrialization and economy, red carpet treatment was given to foreign investors. Opening up of economies unseals the doors to the investors from other countries to invest in each others countries. These investments come in two forms, i.e, FDI (Foreign Direct Investment) and FII (Foreign Institutional Investment. FII (Foreign Institutional Investor) is an investor or investment fundthatis from or registered in a country outside of the one in which it is currentlyinvesting. Institutional investorsinclude hedge funds, insurance companies, pension funds and mutual funds. They invest in various companies through Stock Exchange. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies. Sub-account includes those foreign corporates, foreign individuals, and institutions, funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by a FII. Where as FDI (Foreign Direct Investment) is a component of a countrys national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially hot money which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly. Foreign Investors always prefer FII route than FDI route since, the route of investing in stocks is easy and more liquid with less risk involved. Investors can take away their money as and when they need by making short term bucks. If we see from govts perspective, FII means incoming of a lot of foreign exchange into the country which boosts the Forex reserve. Where as Govt. is inclined to get more FDI than FII as FDI helps setting up manufacturing or service industry thereby bringing foreign exchange, employing people, business by ancillary industries and tax to govt treasury. Countries across the globe are formulating policies to attract more FDI and FII. Countries like India have modified its investment policies to make it conducive for foreign investment. REGULATORY MECHANISM FOR FII INVOLVEMENT Following entities / funds are eligible to get registered as FII: Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks University Funds Endowments Foundations Charitable Trusts / Charitable Societies Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs: Asset Management Companies Institutional Portfolio Managers Trustees Power of Attorney Holders The parameters on which SEBI decides FII applicants eligibility. Applicants track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. (The applicant should have been in existence for at least one year) whether the applicant is registered with and regulated by an appropriate Foreign Regulatory Authority in the same capacity in which the application is filed with SEBI Whether the applicant is a fit proper person. As the FIIs take the route of investing in Stocks etc through stock exchange, they have to be abide by the SEBI guidelines. SEBI generally takes seven working days in granting FII registration. However, in cases where the information furnished by the applicants is incomplete, seven days shall be counted from the days when all necessary information sought, reaches SEBI. In cases where the applicant is bank and subsidiary of a bank, SEBI seeks comments from the Reserve Bank of India (RBI). In such cases, 7 working days would be counted from the day no objection is received from RBI. Which financial Instruments are available for FII investment Securities in primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India; Units of mutual funds; Dated Government Securities; Derivatives traded on a recognized stock exchange; Commercial papers. MACROECONOMIC FACTORS Economic growth and GDP: The countrys GDP at current market prices is projected at Rs. 46, 93,602 crore in 2007-08 by the Central Statistical Organization (CSO). Thus, in the current fiscal year, the size of the Indian economy at market exchange rate will cross US$ 1 trillion. At the nominal exchange rate (average of April-December 2007) GDP is projected to be US$ 1.16 trillion in 2007-08. Per capita income at nominal exchange rate is estimated at US$ 1,021. According to the World Bank system of classification of countries as low income, middle income and high income, India is still in the category of low income countries. The (per capita) GDP at purchasing power parity is conceptually a better indicator of the relative size of the economy than the (per capita)GDP at market exchange rates. There are, however, practical difficulties in deriving GDP at PPP, and we now have two different estimates of the PPP conversion factor for 2005. Indias GDP at PPP is estimated at US$ 5.16 trillion or US$ 3.19 trillion depending on whether the old or new conversion factor is used. In the former case, India is the third largest economy in the world after the United States and China, while in the latter it is the fifth largest (behind Japan and Germany).   GDP at factor cost at constant 1999-2000 prices is projected by the CSO to grow at 8.5 per cent in 2008-09. This represents a deceleration from the unexpectedly high growth of 9.4 per cent, 9.6 per cent and 8.7 per cent respectively, in the previous three years. With the economy modernizing, globalizing and growing rapidly, some degree of cyclical fluctuation is to be expected. Per capita income and consumption: Economic growth, and in particular the growth in per capita income, is a broad quantitative indicator of the progress made in improving public welfare. Per capita consumptionis another quantitative indicator that is useful for judging welfare improvement.The pace of economic improvement has moved up considerably during the last five years (including 2007-08). Since 2003, there has been a sharp acceleration in the growth of per capita income, almost doubling to an average of 7.2 per cent per annum (2003-04 to 2007-08).This means that average income would now double in a decade, well within one generation, instead of after a generation (two decades). The growth rate of per capita income in 2007-08 is projected to be 7.2 per cent, the same as the average of the five years to the current year. Per capita private final consumption expenditure has increased in line with per capita income. The growth rate has almost doubled to 5.1 per cent per year from 2003-04 to 2007-08, with the current years growth expected to be 5.3 per cent, marginally higher than the five year average. The average growth of consumption is slower than the average growth of income, primarily because of rising saving rates, though rising tax collection rates can also widen the gap (during some periods). Year to year changes in consumption also suggest that the rise in consumption is a more gradual and steady process, as any sharp changes in income tend to get adjusted in the saving rate. Per capita income and consumption (in 1999-2000 prices): Year Income Consumption 2007-08 Rs. Growth (%) Rs. Growth (%) 29,786 7.2 17,145 5.3 Income is taken as GDP at market prices. Consumption is PFCE. Per capita is obtained by dividing these by population. MARKET EFFICIENCY However, market efficiency -championed in the efficient market hypothesis (EMH) formulated by Eugene Fama in 1970, suggests that at any given time, prices fully reflect all available information on a particular stock and/or market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock pricebecause no one has access to information not already available to everyone else. (To read more on behavioral finance. The Effect of Efficiency: Non-Predictability The nature of information does not have to be limited to financial news and research alone; indeed, information about political, economic and social events, combined with how investors perceive such information, whether true or rumored, will be reflected in the stock price. According to EMH,as prices respond only to information available in the market, and, because all market participants are privy to the same information, no one will have the ability to out-profit anyone else. In efficient markets, prices become not predictable but random, so no investment pattern can be discerned. A planned approach to investment, therefore, cannot be successful. This random walk of prices, commonly spoken aboutin the EMH school of thought, results in the failure of any investment strategy that aims to beat the market consistently. In fact, the EMH suggests that given the transaction costs involved in portfolio management, it would be more profitable for an investor to put his or her money into an index fund. Anomalies: The Challenge to Efficiency In the real world of investment, however, there are obvious arguments against the EMH. There are investors who have beaten the market Warren Buffett, whose investment strategy focuses onundervalued stocks, made millions and set an example for numerous followers. There are portfolio managerswho have better track records than others, and there are investment houses with more renowned research analysis than others. So how can performance be random when people are clearly profiting from and beating the market? Counter arguments to the EMH state that consistent patterns are present. Here are some examples of some of the predictable anomalies thrown in the face of the EMH:the January effectis a patternthat shows higher returns tend to be earned in the first month of the year; blue Monday on Wall Street isasaying that discourages buying on Friday afternoon and Monday morning because of the weekend effect, the tendency for prices to be higher on the day before and after the weekend than during the rest of the week. Studies in behavioral finance, which look into the effects of investor psychology on stock prices, also reveal that there are some predictable patterns in the stock market. Investors tend to buy undervalued stocks and sell overvalued stocks and, in a market of many participants, the result can be anything but efficient. Paul Krugman, MIT economics professor, suggests that because of the mass mentality of the trendy, short-term shareholder, investors pull in and out of the latest and hottest stocks. This results in stock prices being distorted and the market being inefficient. Soprices no longer reflect all available information in the market. Prices areinstead beingmanipulated by profit seekers. The EMH Response The EMH does not dismiss the possibility of anomalies in the market that result in the generation of superior profits. In fact, market efficiency does not require prices to be equal tofair value all of the time. Prices may be over- or undervalued only in random occurrences, so they eventually revert back to their mean values. As such, because the deviations from a stocks fair price are in themselves random, investment strategies that result in beating the market cannot be consistent phenomena. Furthermore, the hypothesis argues that an investor who outperforms the market does so not out of skill but out of luck. EMH followers say this is due to the laws of probability: at any given time in a market with a large number of investors, some will outperform while other will remain average. How Doesa Market Become Efficient? In order for a market to become efficient, investors must perceive that a market is inefficient and possible to beat. Ironically, investment strategies intended to take advantage of inefficiencies are actually the fuel that keeps a market efficient. A market has to be large and liquid. Information has to be widely available in terms of accessibility and cost and released to investors at more or less the same time. Transaction costs have to be cheaper than the expected profits of an investment strategy. Investorsmust also have enough funds to take adva Stock Market Volatility Around Market Shock 2005-09 Stock Market Volatility Around Market Shock 2005-09 Stock Market Volatility around market shocks event analysis during 2005-2009 ACKNOWLEDGEMENT The Project titled Stock Market volatility around market shock event analysis during 2005-09 is an effort to throw light on Performance Analysis. I have completed this project based on research, under the guidance of name of faculty, my faculty guide. I owe enormous intellectual debt to her as she augmented my knowledge in the field of volatility around market shocks and helped me learn about the topic and gave me valuable insight into the subject matter. My increased spectrum of knowledge in this field is the result of her constant supervision and direction that has helped me to absorb relevant and high quality information. I would like to express my profound gratitude towards COLLEGE NAME for giving me the opportunity to undertake the above research. Last but not the least, I feel indebted to all those persons and organizations which have helped me directly or indirectly in successful completion of this study. DECLARATION I Ghayasuddin a student of MBA of College Name respectively hereby declare that the Project Report on Stock Market volatility around market shock event analysis during 2005-09 is the outcome of my own work and the same has not been submitted to any other University/Institute for the award of any degree or any Professional diploma. OBJECTIVE OF THE STUDY To find out the stock market volatility. To analyze the volatility measure To understand the stock market and its importance To find out the reasons behind the downfall. EXECUTIVE SUMMARY A common problem plaguing the low and slow growth of small developing economies is the swallow financial sector. Financial markets play an important role in the process of economic growth and development by facilitating savings and channeling funds from savers to investors. While there have been numerous attempts to develop the financial sector, small island economies are also facing the problem of high volatility in numerous fronts including volatility of its financial sector. Volatility may impair the smooth functioning of the financial system and adversely affect economic performance. Similarly, stock market volatility also has a number of negative implications. One of the ways in which it affects the economy is through its effect on consumer spending (Campbell, 1996; Starr-McCluer, 1998; Ludvigson and Steindel 1999 and Poterba 2000). The impact of stock market volatility on consumer spending is related via the wealth effect. Increased wealth will drive up consumer spending. However, a fall in stock market will weaken consumer confidence and thus drive down consumer spending. Stock market volatility may also affect business investment (Zuliu, 1995) and economic growth directly (Levine and Zervos, 1996 and Arestis et al 2001). A rise in stock market Volatility can be interpreted as a rise in risk of equity investment and thus a shift of funds to less risky assets. This move could lead to a rise in cost of funds to firms and thus new firms might bear this effect as investors will turn to purchase of stock in larger, well known firms. While there is a general consensus on what constitutes stock market volatility and, to a lesser extent, on how to measure it, there is far less agreement on the causes of changes in stock market volatility. Some economists see the causes of volatility in the arrival of new, unanticipated information that alters expected returns on a stock (Engle and Ng, 1993). Thus, changes in market volatility would merely reflect changes in the local or global economic environment. Others claim that volatility is caused mainly by changes in trading volume, practices or patterns, which in turn are driven by factors such as modifications in macroeconomic policies, shifts in investor tolerance of risk and increased un certainty. The degree of stock market volatility can help forecasters predict the path of an economys growth and the structure of volatility can imply thatinvestors now need to hold more stocks in their portfolio to achieve diversification(Krainer, J, 2002:1). This case is more serious for small developing economies like Fiji who is attempting to deepen its financial sector by developing its stock market. Unlike mature stock markets of advanced economies, the stock markets of less developed economies like Fiji began to develop rapidly only in the last two decades and are sensitive to factors such as changes in the levels of economic activities, changes in the political and international economic environment and also related to the changes in the macro economic variables. Therefore, in this paper, we examine if Fijis Stock market is volatile and if so, then what is the role of interest rate being one of the most important macroeconomic variables on the volatility of stock returns. This article benefits from developments in the measurement of volatility through econometric techniques. Here, the regime-switching- ARCH model introduced by Engle (1982) and its extension, the GARCH model, (Bollerslev, 1986) is used to estimate the conditional va riance of Fijis daily stock return from January 2001 to December 2005. This method allows for an objective determination of the presence of volatility. The results of estimates of stock return volatility is then related to changes in the interest rates. The second section of the paper provides an overview of Fijis stock market. The third section of the paper provides an exposition of the methodology used in this study. The fourth section provides a summary of the results and its discussion. The last section provides a summary and conclusion. INTRODUCTION TO THE INDIAN ECONOMY India has struggled financially since independence, experiencing slow economic growth and economic setbacks due to climatic extremes or political disturbances. The country has been gradually transforming its economic base from agrarian to industrial and commercial. Under British rule in the 19th century, Indias cottage industries and thriving trade were virtually destroyed to make way for European manufactured goods, paid for by exports of agricultural products such as cotton, opium, and tea. Beginning in the late 19th century a modern industrial sector and an extensive infrastructure of railways and irrigation works were slowly built with British and Indian capital. Nevertheless, Indias economy stagnated during the last 30 or so years of British rule. At independence in 1947 India was desperately poor, with an aging textile industry as its only major industrial sector. Economic policy after independence emphasized central planning, with the government setting goals for and closely regulating private industry. Self-sufficiency was promoted in order to foster domestic industry and reduce dependence on foreign trade. These efforts produced steady economic growth in the 1950s, but less positive results in the two succeeding decades. By the early 1970s India had achieved its goal of self-sufficiency in food production, although this food was not equally available to all Indians due to skewed distribution and occasional shortfalls in the harvest. In the late 1970s the government began to reduce state control of the economy, making slow progress toward this goal. By 1991, however, the government still regulated or ran many industries, including mining and quarrying, banking and insurance, transportation and communications, and manufacturing and construction. Economic growth improved during this period, at least partially as a result of development projects funded by foreign loans. Indias low average growth rate up to 1980 was derisively referred to as the Hindu rate of growth, because of the contrasting high growth rates in other Asian countries, especially the East Asian Tigers. The economic reforms that surged economic growth in India after 1980 can be attributed to two stages of reforms. The pro-business reform of 1980 initiated by Indira Gandhi and carried on by Rajiv Gandhi, eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. The economic liberalisation of 1991, initiated by then Indian prime minister P. V. Narasimha Rao and his finance minister Manmohan Singh in response to a macroeconomic crisis did away with the Licence Raj (investment, industrial and import licensing) and ended public sector monopoly in many sectors, thereby allowing automatic approval of foreign direct investment in many sectors. Since then, the overall direction of liberalisation has remained the same, irrespective of the ruli ng party at the centre, although no party has yet tried to take on powerful lobbies like the trade unions and farmers, or contentious issues like labour reforms and cutting down agricultural subsidies. Liberalization in India paved the way for lots of foreign companies to come and setup heir base in India and for investors across the globe to invest money in Indian stock Market. Buoyant Indian Economy really raised eyebrows of many and investment in India keeps on surging high year after year touching new height. Since liberalization the foreign investors are on a spree of investment in India both in the form of FDI and FII. Stock Exchange being the only route for FIIs to come into India has been has been spearheading the task of giving investors a bright picture of the economy leading to brining more and more investment into the state. Hence, the vital role of Stock Exchange and the association of Stock Exchange with Foreign Investment can not be undermined. In the later part of the study, we will look into the details of how the Stock Exchange is associated with FIIs and vice versa.   ABOUT STOCK MARKET AND STOCK EXCHANGES A stock exchange or bourse is a corporation or mutual organization which provides the facilities for stock brokers to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities, as well as other financial instruments and capital events including the payment of income and dividends. In other words, Stock Exchanges are an organised marketplace, either corporation or mutual organisation, where members of the organisation gather to trade company stocks and other securities. The members may act either as agents for their customers, or as principals for their own accounts. Stock exchanges also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerised. The trade on an exchange is only by members and stock broker do have a seat on the exchange. The securities traded on a stock exchange include shares issued by companies, unit trusts and other pooled investment products as well as bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only; a stock broker is said to have a seat on the exchange. A stock exchange is often the most important component of a stock market. There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. Increasingly all stock exchanges are part of a global market for securities. 200 years ago in front of Trinity church in East Manhattan in U.S oldest stock exchange called New York stock exchange emerged, when there were no paper money changing hands and there was not even the idea of stock, people trade silver for papers saying they owned shares in cargo .The trade flourished. During American Revolution, the colonial government needed money to fund its wartime operations. By selling bonds they did this. Bonds are pieces of paper a person buys for a set price, knowing that after a certain period of time; they can exchange their bonds for a profit. Along with bonds, the first of the nations bank started to sell parts or shares of their own company to people in order to raise money. Thus they sell the part of the company to whoever wanted to buy it. This led to the emergence of the modern day stock market. The concept of stock markets came to India in 1875, when Bombay Stock Exchange (BSE) was established as The Native Share and Stockbrokers Association, a voluntary non-profit making association. BSE is the oldest in Asia. Presently India has about 10,000 listed companies, the largest number of listed companies in the world. Stock exchanges in India can be categorized as: 1) Voluntary Associations such as Bombay, Indore and Ahmedabad, 2) Public limited companies such as Calcutta and Delhi, and 3) Guarantee companies such as Hyderabad, Madras and Bangalore. Besides BSE, Indias other major stock exchange is National Stock Exchange (NSE) that was promoted by leading financial institutions and was established in April 1993. Today, these global stock exchanges have become premier institutions and are highly efficient, computerized organizations that have fostered the growth of an open, global securities market. Today India boasts 23 regional Stock Exchanges along with BSE and NSE. RESEARCH METHODOLOGY The research has been done by selecting the companies which are the representative of a particular sector on the basis of overall market capitalization, stocks having the highest liquidity and turnover both on the NSE and BSE. A caution was thus taken and by thorough approach the best companies were selected so as to portray a genuine picture of the sector. With the help of SPSS Package and using the quantitative techniques, the statistical analysis has been done. The following analysis has been done for all the 8 companies: Fundamental analysis. Future growth and earnings analysis. Statistical analysis. Technical analysis. ROLE OF STOCK EXCHANGES IN THE ECONOMY The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. Mobilising Savings for Investment When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilised and redirected to promote commerce and industry. Redistribution of Wealth By giving a wide spectrum of people a chance to buy shares and therefore become part-owners of profitable enterprises, the stock market helps to reduce large income inequalities because many people get a chance to share in the profits of business that were set up by other people. Improving Corporate Governance By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders. It is evident that generally, public companies tend to have better management records than private companies. Creates Investment Opportunities for Small Investors As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides an extra source of income to small savers. Government Raises Capital for Development Projects The Government and even local authorities like municipalities may decide to borrow money in order to finance huge infrastructure projects such as sewerage and water treatment works or housing estates by selling another category of shares known as Bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them. When the Government or Municipal Council gets this alternative source of funds, it no longer has the need to overtax the people in order to finance development. Barometer of the Economy At the Stock Exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability. Therefore the movement of share prices can be an indicator of the general trend in the economy. With countries moving away from socialistic approach and towards globalization of their economies, the role and importance of Stock Exchanges has gone up considerably. Today Stock Exchanges   depict the financial position of the economy of a country. INVESTMENST SCENAREO In closed economies only the Govt. has the sole responsibility and discretion of investment in various projects in the country. No private parties were allowed to invest in any venture. However, countries where mixed economy exist are liberal to the extent of giving permission to some private parties for investment in some selected sectors. However, countries which adopted globalization made their policies liberal enough to give private players permission to invest and run in any sector of their wish. Globalization has made the world boundary less where free flow of labour, capital exists among member countries. Interdependence among countries has given the drive a real momentum. Seeing the robust growth that some of the Asian countries registered really stunned the other nations which had closed economy. These nations which adopted globalization being the first runners were termed as Asian Tigers. Many followed the suit. Few countries followed the path of economic reforms with an anticipation of the prospective growth while the others due to some economic compulsions. A few countries like India were in real soup with acute financial crisis and were not in a position of running the socialistic approach anymore. A balance of payments crisis at the time opened the way for an International Monetary Fund (IMF) program that led to the adoption of a major reform package. It went ahead with globalization and reform process in a step by step approach. Countries realizing that only domestic investments and resources can not be relied upon for rapid growth in industrialization and economy, red carpet treatment was given to foreign investors. Opening up of economies unseals the doors to the investors from other countries to invest in each others countries. These investments come in two forms, i.e, FDI (Foreign Direct Investment) and FII (Foreign Institutional Investment. FII (Foreign Institutional Investor) is an investor or investment fundthatis from or registered in a country outside of the one in which it is currentlyinvesting. Institutional investorsinclude hedge funds, insurance companies, pension funds and mutual funds. They invest in various companies through Stock Exchange. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies. Sub-account includes those foreign corporates, foreign individuals, and institutions, funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by a FII. Where as FDI (Foreign Direct Investment) is a component of a countrys national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially hot money which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly. Foreign Investors always prefer FII route than FDI route since, the route of investing in stocks is easy and more liquid with less risk involved. Investors can take away their money as and when they need by making short term bucks. If we see from govts perspective, FII means incoming of a lot of foreign exchange into the country which boosts the Forex reserve. Where as Govt. is inclined to get more FDI than FII as FDI helps setting up manufacturing or service industry thereby bringing foreign exchange, employing people, business by ancillary industries and tax to govt treasury. Countries across the globe are formulating policies to attract more FDI and FII. Countries like India have modified its investment policies to make it conducive for foreign investment. REGULATORY MECHANISM FOR FII INVOLVEMENT Following entities / funds are eligible to get registered as FII: Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks University Funds Endowments Foundations Charitable Trusts / Charitable Societies Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs: Asset Management Companies Institutional Portfolio Managers Trustees Power of Attorney Holders The parameters on which SEBI decides FII applicants eligibility. Applicants track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. (The applicant should have been in existence for at least one year) whether the applicant is registered with and regulated by an appropriate Foreign Regulatory Authority in the same capacity in which the application is filed with SEBI Whether the applicant is a fit proper person. As the FIIs take the route of investing in Stocks etc through stock exchange, they have to be abide by the SEBI guidelines. SEBI generally takes seven working days in granting FII registration. However, in cases where the information furnished by the applicants is incomplete, seven days shall be counted from the days when all necessary information sought, reaches SEBI. In cases where the applicant is bank and subsidiary of a bank, SEBI seeks comments from the Reserve Bank of India (RBI). In such cases, 7 working days would be counted from the day no objection is received from RBI. Which financial Instruments are available for FII investment Securities in primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India; Units of mutual funds; Dated Government Securities; Derivatives traded on a recognized stock exchange; Commercial papers. MACROECONOMIC FACTORS Economic growth and GDP: The countrys GDP at current market prices is projected at Rs. 46, 93,602 crore in 2007-08 by the Central Statistical Organization (CSO). Thus, in the current fiscal year, the size of the Indian economy at market exchange rate will cross US$ 1 trillion. At the nominal exchange rate (average of April-December 2007) GDP is projected to be US$ 1.16 trillion in 2007-08. Per capita income at nominal exchange rate is estimated at US$ 1,021. According to the World Bank system of classification of countries as low income, middle income and high income, India is still in the category of low income countries. The (per capita) GDP at purchasing power parity is conceptually a better indicator of the relative size of the economy than the (per capita)GDP at market exchange rates. There are, however, practical difficulties in deriving GDP at PPP, and we now have two different estimates of the PPP conversion factor for 2005. Indias GDP at PPP is estimated at US$ 5.16 trillion or US$ 3.19 trillion depending on whether the old or new conversion factor is used. In the former case, India is the third largest economy in the world after the United States and China, while in the latter it is the fifth largest (behind Japan and Germany).   GDP at factor cost at constant 1999-2000 prices is projected by the CSO to grow at 8.5 per cent in 2008-09. This represents a deceleration from the unexpectedly high growth of 9.4 per cent, 9.6 per cent and 8.7 per cent respectively, in the previous three years. With the economy modernizing, globalizing and growing rapidly, some degree of cyclical fluctuation is to be expected. Per capita income and consumption: Economic growth, and in particular the growth in per capita income, is a broad quantitative indicator of the progress made in improving public welfare. Per capita consumptionis another quantitative indicator that is useful for judging welfare improvement.The pace of economic improvement has moved up considerably during the last five years (including 2007-08). Since 2003, there has been a sharp acceleration in the growth of per capita income, almost doubling to an average of 7.2 per cent per annum (2003-04 to 2007-08).This means that average income would now double in a decade, well within one generation, instead of after a generation (two decades). The growth rate of per capita income in 2007-08 is projected to be 7.2 per cent, the same as the average of the five years to the current year. Per capita private final consumption expenditure has increased in line with per capita income. The growth rate has almost doubled to 5.1 per cent per year from 2003-04 to 2007-08, with the current years growth expected to be 5.3 per cent, marginally higher than the five year average. The average growth of consumption is slower than the average growth of income, primarily because of rising saving rates, though rising tax collection rates can also widen the gap (during some periods). Year to year changes in consumption also suggest that the rise in consumption is a more gradual and steady process, as any sharp changes in income tend to get adjusted in the saving rate. Per capita income and consumption (in 1999-2000 prices): Year Income Consumption 2007-08 Rs. Growth (%) Rs. Growth (%) 29,786 7.2 17,145 5.3 Income is taken as GDP at market prices. Consumption is PFCE. Per capita is obtained by dividing these by population. MARKET EFFICIENCY However, market efficiency -championed in the efficient market hypothesis (EMH) formulated by Eugene Fama in 1970, suggests that at any given time, prices fully reflect all available information on a particular stock and/or market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock pricebecause no one has access to information not already available to everyone else. (To read more on behavioral finance. The Effect of Efficiency: Non-Predictability The nature of information does not have to be limited to financial news and research alone; indeed, information about political, economic and social events, combined with how investors perceive such information, whether true or rumored, will be reflected in the stock price. According to EMH,as prices respond only to information available in the market, and, because all market participants are privy to the same information, no one will have the ability to out-profit anyone else. In efficient markets, prices become not predictable but random, so no investment pattern can be discerned. A planned approach to investment, therefore, cannot be successful. This random walk of prices, commonly spoken aboutin the EMH school of thought, results in the failure of any investment strategy that aims to beat the market consistently. In fact, the EMH suggests that given the transaction costs involved in portfolio management, it would be more profitable for an investor to put his or her money into an index fund. Anomalies: The Challenge to Efficiency In the real world of investment, however, there are obvious arguments against the EMH. There are investors who have beaten the market Warren Buffett, whose investment strategy focuses onundervalued stocks, made millions and set an example for numerous followers. There are portfolio managerswho have better track records than others, and there are investment houses with more renowned research analysis than others. So how can performance be random when people are clearly profiting from and beating the market? Counter arguments to the EMH state that consistent patterns are present. Here are some examples of some of the predictable anomalies thrown in the face of the EMH:the January effectis a patternthat shows higher returns tend to be earned in the first month of the year; blue Monday on Wall Street isasaying that discourages buying on Friday afternoon and Monday morning because of the weekend effect, the tendency for prices to be higher on the day before and after the weekend than during the rest of the week. Studies in behavioral finance, which look into the effects of investor psychology on stock prices, also reveal that there are some predictable patterns in the stock market. Investors tend to buy undervalued stocks and sell overvalued stocks and, in a market of many participants, the result can be anything but efficient. Paul Krugman, MIT economics professor, suggests that because of the mass mentality of the trendy, short-term shareholder, investors pull in and out of the latest and hottest stocks. This results in stock prices being distorted and the market being inefficient. Soprices no longer reflect all available information in the market. Prices areinstead beingmanipulated by profit seekers. The EMH Response The EMH does not dismiss the possibility of anomalies in the market that result in the generation of superior profits. In fact, market efficiency does not require prices to be equal tofair value all of the time. Prices may be over- or undervalued only in random occurrences, so they eventually revert back to their mean values. As such, because the deviations from a stocks fair price are in themselves random, investment strategies that result in beating the market cannot be consistent phenomena. Furthermore, the hypothesis argues that an investor who outperforms the market does so not out of skill but out of luck. EMH followers say this is due to the laws of probability: at any given time in a market with a large number of investors, some will outperform while other will remain average. How Doesa Market Become Efficient? In order for a market to become efficient, investors must perceive that a market is inefficient and possible to beat. Ironically, investment strategies intended to take advantage of inefficiencies are actually the fuel that keeps a market efficient. A market has to be large and liquid. Information has to be widely available in terms of accessibility and cost and released to investors at more or less the same time. Transaction costs have to be cheaper than the expected profits of an investment strategy. Investorsmust also have enough funds to take adva