Long run and short run test for market efficiency: Evidence for the British Pound, the German Mark and the Japanese Yen

2006 ◽  
Vol 6 (2) ◽  
pp. 163-182
Author(s):  
Dimitris Kenourgios ◽  
Aristeidis Samitas ◽  
Andreas Christodoulou
Keyword(s):  
Market Efficiency ◽  
Long Run ◽  
Short Run ◽  
Japanese Yen ◽  
Run Test ◽  
German Mark

scholarly journals Exchange Rates and Monetary Fundamentals: What Do We Learn from Linear and Nonlinear Regressions?

2014 ◽  
Vol 2014 ◽  
pp. 1-14 ◽  
Author(s):  
Guangfeng Zhang
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Correction Model ◽  
Exchange Rate Dynamics ◽  
Long Run ◽  
Exchange Rate Movements ◽  
Short Run ◽  
Us Dollar ◽  
Linear And Nonlinear ◽  
Japanese Yen

This paper revisits the association between exchange rates and monetary fundamentals with the focus on both linear and nonlinear approaches. With the monthly data of Euro/US dollar and Japanese yen/US dollar, our linear analysis demonstrates the monetary model is a long-run description of exchange rate movements, and our nonlinear modelling suggests the error correction model describes the short-run adjustment of deviations of exchange rates, and monetary fundamentals are capable of explaining exchange rate dynamics under an unrestricted framework.

scholarly journals The Effect of International Currency Crises on the Balance of Payments: Evidence From Jordan

2020 ◽  
Vol 11 (5) ◽  
pp. 275
Author(s):  
Tamer Rawashdeh ◽  
Mahmoud Al-Rdaydeh ◽  
Basem Hamouri
Keyword(s):  
Currency Crises ◽  
Balance Of Payments ◽  
Bounds Testing ◽  
Testing Technique ◽  
International Currency ◽  
The United Kingdom ◽  
Long Run ◽  
Short Run ◽  
Us Dollar ◽  
Japanese Yen

The effect of the international currency crises on the Jordanian balance of payments (BoP) between Q1-2000 and Q4-2017 was investigated in this paper. The currency crises are represented by the various exchange rates (ER) for the Japanese Yen, United States (US) Dollar, Euro Member Countries, China Renminbi, and the United Kingdom (UK) Pound with the Jordanian Dinar. In approximating the potential short-run and long-run associations among the different ER variations and the BoP, the ARDL bounds testing technique was employed. The empirical findings revealed that variation in the ER rate for EUR/JOD had a positive significant impact on the BOP for the short-run and long-run relation, whereas, opposingly, for the JPY/JOD, it had a negative significant impact on the BoP in the short-run and long-run relations. For other currencies, the results varied. Therefore, to reduce the effect of currency fluctuations and resultant crises on the BoP, over-reliance on the promotion and importation of goods and domestic export products should be avoided. As such, in the context of the Jordanian economy, the country needs to diversify. Accordingly, this can only be achieved if the economy is expanded along with advancing and developing entrepreneurial innovation supported by fiscal disciplines.

scholarly journals Modeling and Forecasting Gold Prices

2020 ◽  
Author(s):  
Richmond Sam-Quarm ◽  
Mohamed Osman Elamin Busharads
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Price Volatility ◽  
Gold Price ◽  
Oil Price ◽  
Future Market ◽  
Open Interest ◽  
Long Run ◽  
Short Run ◽  
Japanese Yen

The aim of this paper is to explore the reasons of gold price volatility. It analyses the information function of the gold future market by open interest contracts as speculation effect, and further fundamental factors including inflation, Chinese yuan per dollar, Japanese yen per dollar, dollar per euro, interest rate, oil price, and stock price, in the short-run. The study proceeds to build a Dynamic OLS model for long-run equilibrium to produce reliable gold price forecasts using the following variables: gold demand, gold supply, inflation, USD/SDR exchange rate, speculation, interest rate, oil price, and stock prices. Findings prove that in the short-run, changes in gold price does granger cause changes in open interest, and changes in Japanese yen per dollar does granger cause changes in gold price. However, in the long-run, the results prove that gold demand, gold supply, USD/SDR exchange rate, inflation, speculation, interest rate, and oil price are associated in a long-run relationship.References

scholarly journals Asymmetric Price Adjustment: Are IPO Prices too "Sticky"?

2011 ◽  
Vol 7 (5) ◽  
Author(s):  
Michael Adams ◽  
Barry Thornton ◽  
Russ Baker
Keyword(s):  
Market Efficiency ◽  
Stock Prices ◽  
Stock Price ◽  
Investor Sentiment ◽  
Relevant Information ◽  
Price Adjustment ◽  
Informational Efficiency ◽  
Long Run ◽  
New Information ◽  
Short Run

The study of IPO mispricing is salient because it raises important questions concerning market efficiency and the existence of systematic stock patterns that can be employed by investors to generate excess market returns. The purpose of this paper is to investigate the informational efficiency of IPO market prices with respect to the first 3 trading day’s return and to examine the effect of varying investor sentiment on this information efficiency.  Under traditional definitions of market efficiency, asset prices, including IPO prices should fully reflect all available and relevant information (Fama 1970).  An increasing body of empirical evidence, however, suggests that IPO prices are not efficient as evidenced both in the short run and the long run.  The speed of incorporation of new information into stock prices is critical to many central issues in financial research, such as market efficiency, arbitrage, and market structure. This paper analyzes the speed of price adjustment to information events for IPOs. The setting of the immediate aftermarket presents an opportunity to investigate the issue when little or no trading history exists. In such a setting, investors are more exposed to new information because they cannot observe the stock price behavior or the reactions to previous information signals.

Stock Repurchase in Korea: Market Reactions and Operating Performance

2005 ◽  
Vol 08 (01) ◽  
pp. 81-112 ◽  
Author(s):  
Youngkyu Park ◽  
Kooyul Jung
Keyword(s):  
Cash Flow ◽  
Operating Performance ◽  
Free Cash Flow ◽  
Stock Repurchase ◽  
Market Reactions ◽  
Long Run ◽  
Short Run ◽  
Run Test ◽  
Optimal Leverage ◽  
Signaling Hypothesis

This study examines the motive for stock repurchase. We examine four hypotheses — undervaluation, signaling, free cash flow, and optimal leverage hypotheses — using both short-run and long-run market reactions. We find that the undervaluation hypothesis is most consistent with both short-run and long-run tests. Improvement in operating performance following repurchase suggests the signaling hypothesis. However, the signaling hypothesis is supported only in the long-run test, not the short-run test, suggesting that market underreaction exists to the signaling initially. Of the control variables, the target purchase ratio and ownership by the largest shareholders are found significant, suggesting that the magnitude of repurchase and the ownership increase motive by the largest shareholders are also important factors that explain the repurchase.

Cointegration-based trading: evidence on index tracking & market-neutral strategies

2016 ◽  
Vol 42 (5) ◽  
pp. 449-471 ◽  
Author(s):  
Ioannis Papantonis
Keyword(s):  
Market Efficiency ◽  
Trading Strategies ◽  
Portfolio Performance ◽  
Pairs Trading ◽  
Content Type ◽  
Statistical Arbitrage ◽  
Long Run ◽  
Wide Range ◽  
Short Run ◽  
Depth Sensitivity

Purpose – The purpose of this paper is to present an alternative approach to equity trading that is based on cointegration. If there are long-run equilibria among financial assets, a cointegration-based trading strategy can exploit profitable opportunities by capturing mean-reverting short-run deviations. Design/methodology/approach – First, the author introduces an equity indexing technique to form cointegration tracking portfolios that are able to replicate an index effectively. The author later enhances this tracking methodology in order to construct more complex portfolio-trading strategies that can be approximately market neutral. The author monitors the performance of a wide range of trading strategies under different specifications, and conducts an in-depth sensitivity analysis of the factors that affect the optimal portfolio construction. Several statistical-arbitrage tests are also carried out in order to examine whether the profitability of the cointegration-based trading strategies could indicate a market inefficiency. Findings – The author shows that under certain parameter specifications, an efficient tracking portfolio is able to produce similar patterns in terms of returns and volatility with the market. The author also finds that a successful long-short strategy of two cointegration portfolios can yield an annualized return of more than 8 percent, outperforming the benchmark and also demonstrating insignificant correlation with the market. Even though some cointegration-based pairs-trading strategies can consistently generate significant cumulative profits, yet they do not seem to converge to risk-less arbitrages, and thus the hypothesis of market efficiency cannot be rejected. Originality/value – The primary contribution of the research lies within the detailed analysis of the factors that affect the tracking-portfolio performance, thus revealing the optimal conditions that can lead to enhanced returns. Results indicate that cointegration can provide the means to successfully reproducing the risk-return profile of a benchmark and to implementing market-neutral strategies with consistent profitability. By testing for statistical arbitrage, the author also provides new evidence regarding the connection between the profit accumulation of cointegration-based pairs-trading strategies and market efficiency.

Price Discovery and Market Efficiency of Commodities Futures Market in India- A Cointegration and Causality Analysis

2015 ◽  
Vol 5 (2) ◽  
Author(s):  
Shaik Masood ◽  
T. Satyanarayana Chary
Keyword(s):  
Market Efficiency ◽  
Price Discovery ◽  
Spot Market ◽  
Futures Market ◽  
Commodity Futures ◽  
Causality Analysis ◽  
Long Run ◽  
Integration Test ◽  
Short Run

The paper studies the Indian commodity futures market in order to determine the price discovery, long run market efficiency and short run dynamics in futures market using by time series analysis tools. To test the market efficiency and long run equilibrium, tools like Engle and Granger co-integration test (1987) and Johansen co-integration test (1988) have been applied. The Granger Causality (1969) test is used test the market efficiency to infer cause and affect relationship between spot and futures market in India. To examine efficiency of commodity futures and spot market the MCXs1 four spot and futures commodity indices data are used. The paper observes that the role of commodity futures is very significant in price discovery, and improving efficiency of the market.

scholarly journals THE IMPACT OF PRICE VARIABILITY ON CASH/FUTURES MARKET RELATIONSHIPS: IMPLICATIONS FOR MARKET EFFICIENCY AND PRICE DISCOVERY

2015 ◽  
Vol 47 (4) ◽  
pp. 539-559 ◽  
Author(s):  
CARLOS ARNADE ◽  
LINWOOD HOFFMAN
Keyword(s):  
Market Efficiency ◽  
Price Discovery ◽  
Discovery Process ◽  
Futures Prices ◽  
Price Variability ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Short Run ◽  
The Impact ◽  
Price Discovery Process

AbstractThis study investigates the relationship between cash and futures prices of soybeans and soybean meal from 1992 to 2013. Error correction models are estimated for the prices of both commodities. An exogenous measure of price variability is included in both models to determine if variability increases the speed with which cash and futures prices return to their long-run equilibrium relationship. This is used to measure the impact of price variability on short-run market efficiency and the price discovery process. The findings indicate that the level of price variability influences market adjustment rates and the price discovery process.

scholarly journals Modeling and Forecasting Gold Prices

2020 ◽  
Author(s):  
Richmond Sam Quarm ◽  
Mohamed Osman Elamin Busharads
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Price Volatility ◽  
Gold Price ◽  
Oil Price ◽  
Future Market ◽  
Open Interest ◽  
Long Run ◽  
Short Run ◽  
Japanese Yen

The aim of this paper is to explore the reasons of gold price volatility. It analyses the information function of the gold future market by open interest contracts as speculation effect, and further fundamental factors including inflation, Chinese yuan per dollar, Japanese yen per dollar, dollar per euro, interest rate, oil price, and stock price, in the short-run. The study proceeds to build a Dynamic OLS model for long-run equilibrium to produce reliable gold price forecasts using the following variables: gold demand, gold supply, inflation, USD/SDR exchange rate, speculation, interest rate, oil price, and stock prices. Findings prove that in the short-run, changes in gold price does granger cause changes in open interest, and changes in Japanese yen per dollar does granger cause changes in gold price. However, in the long-run, the results prove that gold demand, gold supply, USD/SDR exchange rate, inflation, speculation, interest rate, and oil price are associated in a long-run relationship.

Market efficiency in Indian soybean futures markets

2014 ◽  
Vol 9 (4) ◽  
pp. 520-534 ◽  
Author(s):  
Thiagu Ranganathan ◽  
Usha Ananthakumar
Keyword(s):  
Market Efficiency ◽  
Risk Premium ◽  
Futures Markets ◽  
Structural Breaks ◽  
Time Varying ◽  
Content Type ◽  
Futures Contract ◽  
Long Run ◽  
Short Run ◽  
Commodity Derivatives

Purpose – The National commodity exchanges were established in India in the year 2003-2004 to perform the functions of price discovery and price risk management in the economy. The derivatives market can perform these functions properly only if they are efficient and unbiased. So, there is a need to properly evaluate these aspects of the Indian commodity derivatives market. The purpose of this paper is to test the market efficiency and unbiasedness of the Indian soybean futures markets. Design/methodology/approach – The paper uses cointegration and a QARCH-M-ECM-based framework to test the market efficiency and unbiasedness in the soybean futures contract traded in the National Commodity Derivatives Exchange (NCDEX). The cointegration test is used to test the long-run unbiasedness and market efficiency of the contract, while the QARCH-M-ECM model is used to test the short-run market efficiency and unbiasedness of the contract by allowing for a time-varying risk premium. The price data is also tested for presence of structural breaks using a Zivot and Andrews unit root test. Findings – The soybean contract is unbiased in the long run, but there are short-run market inefficiencies and also a presence of a time-varying risk premium. Though the weak form of market efficiency is rejected in the short run, the semi-strong market efficiency is not rejected based on the forecasts. Originality/value – This is the first paper to consider time-varying risk premium while performing the tests of market efficiency and unbiasedness on Indian commodity markets.

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