{"id":40890402,"date":"2024-01-10T10:02:29","date_gmt":"2024-01-10T04:32:29","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/?p=40890402"},"modified":"2024-01-10T10:02:30","modified_gmt":"2024-01-10T04:32:30","slug":"market-cap-classification-and-illiquidity","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2024\/01\/10\/market-cap-classification-and-illiquidity\/","title":{"rendered":"Market-cap Classification and Illiquidity"},"content":{"rendered":"\n<p>Twice a year, AMFI is tasked with categorizing the universe of stocks into \u201clarge\/mid\/small\u201d and funds with specific market-cap mandates are allowed to invest in only the corresponding set of stocks (<a rel=\"noreferrer noopener\" href=\"https:\/\/www.amfiindia.com\/research-information\/other-data\/categorization-of-stocks\" target=\"_blank\">amfiindia<\/a>, <a rel=\"noreferrer noopener\" href=\"https:\/\/www.amfiindia.com\/Themes\/Theme1\/downloads\/1507291273374.pdf\" target=\"_blank\">sebi<\/a>). We have a report that shows these changes over time (<a href=\"https:\/\/stockviz.github.io\/reports01\/index\/rp-MKT-CAP.html\">stockviz<\/a>).<\/p>\n\n\n\n<p>Given the massive flows involved, what is the prospective impact on liquidity as stocks get promoted and demoted between these classes? <\/p>\n\n\n\n<p>We measure illiquidity using Amihud\u2019s (<a href=\"https:\/\/www.cis.upenn.edu\/~mkearns\/finread\/amihud.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">Illiquidity and stock returns, 2002<\/a>) illiquidity measure <strong>ILLIQ<\/strong>.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/mcap-class\/Amihud_2002.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>Between market-cap classes, the differences in liquidity is large enough to warrant a log-scale:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/mcap-class\/illiquidity-mkt-cap.simple.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>With this large disparity in mind, we can now look at the impact of migrations.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Large-cap Exits<\/h3>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/mcap-class\/illiquidity.large-cap-exit.simple.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Mid-cap Promotions<\/h3>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/mcap-class\/illiquidity.mid-cap-to-large-cap.simple.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Mid-cap Demotions<\/h3>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/mcap-class\/illiquidity.mid-cap-to-small-cap.simple.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Small-cap Promotions<\/h3>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/github.com\/stockviz\/blog\/blob\/master\/mcap-class\/illiquidity.small-cap-to-midcap-cap.simple.png?raw=true\" alt=\"\" \/><\/figure>\n\n\n\n<p>It appears that stocks that get promoted from mid-caps to large-caps turn a bit illiquid. Otherwise, most migrations have negligible impact on their forward six-month illiquidity measure.<\/p>\n\n\n\n<p>Code and charts on <a href=\"https:\/\/github.com\/stockviz\/blog\/tree\/master\/mcap-class\" target=\"_blank\" rel=\"noreferrer noopener\">github<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Twice a year, AMFI is tasked with categorizing the universe of stocks into \u201clarge\/mid\/small\u201d and funds with specific market-cap mandates are allowed to invest in only the corresponding set of stocks (amfiindia, sebi). We have a report that shows these changes over time (stockviz). Given the massive flows involved, what is the prospective impact on &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2106273,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[2761],"class_list":["post-40890402","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-quant","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890402","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=40890402"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40890402\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2106273"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=40890402"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=40890402"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=40890402"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}