Resources for Basel II Capital Accord (Basel II)

A contrarian View

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Breadth, depth, and diversification - all these three can mean several different things in financial markets. Breadth is usually judged on the number of actively-traded stocks and advance:decline ratios. But it could also mean the direction of sector movements - are the majority sectors going up or down?

You can also have a conflict between those numbers. For example, the financial sector contains more actively traded companies than textiles, refiners and white goods taken together. So you could have a day when financial stocks move up while textiles, refiners and white goods drop. There would be a healthy advance decline ratio but the sector breadth would be negative.

Depth means both the number of liquid stocks as well as the volumes registered along with price shifts. If say, a stock (or an index) is trading 10 lakh shares at Rs 100, how many shares will trade at Rs 120 or Rs 80? Impact cost is an inverse proxy for depth - the lower the impact cost, the deeper the market.

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