scholarly journals Regression Towards The Mean Versus Efficient Market Hypothesis: An Empirical Study

2011 ◽  
Vol 4 (12) ◽  
Author(s):  
H. Francis Bush ◽  
Michael D. Canning
Keyword(s):  
Empirical Study ◽  
Market Efficiency ◽  
Capital Markets ◽  
Efficient Market Hypothesis ◽  
Font Size ◽  
Efficient Market ◽  
The Mean ◽  
Fortune Magazine ◽  
Regression Towards The Mean

<p class="MsoNormal" style="text-align: justify; margin: 0in 31.2pt 0pt 0.5in;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">This study investigates the dominance of the statistical phenomenon, regression towards the means, against the market efficiency of capital markets.<span style="mso-spacerun: yes;">&nbsp; </span>Using Fortune Magazine&rsquo;s ranking of America&rsquo;s most admired companies to distinguish positive from negative firms, and using the Standard and Poor Index as a surrogate for market, the authors demonstrated that: (1) a portfolio of least admired forms will outperform a portfolio of most admired firms, (2) a portfolio of most admired firms will outperform the market, and (3) a portfolio of least admired firms will outperform the market.</span></span></p>

Transparency — An Empirical Study Using Taiwan Stock Exchange Data

2006 ◽  
Vol 09 (01) ◽  
pp. 129-147 ◽  
Author(s):  
Chiou-Fa Lin
Keyword(s):  
Asymmetric Information ◽  
Empirical Study ◽  
Market Efficiency ◽  
Capital Markets ◽  
Stock Exchange ◽  
Movement Direction ◽  
Efficient Market ◽  
Taiwan Stock Exchange ◽  
Trading Mechanism ◽  
Exchange Data

Understanding the impacts of transparency in capital markets is important for determining the trading mechanism and for evaluating market efficiency and market fairness. The recent reforms covering trade transparency on the Taiwan Stock Exchange give us an opportunity to address and examine the relevant arguments. Evidence from this study indicates that increasing trade transparency may create a more efficient market due to decreased effective spreads compared with before the event. Asymmetric information also declines after transparency is liberalized. However, the movement direction of the realized spread does not seem obvious or pronounced. The implication from our results is that the exact effects from trade transparency may be dependent on the stock market's structure itself.

scholarly journals THE EFFICIENT MARKET HYPOTHESIS: A CRITICAL REVIEW OF LITERATURE AND METHODOLOGY

Ekonomika ◽  
2014 ◽  
Vol 93 (2) ◽  
pp. 7-23 ◽  
Author(s):  
Augustas Degutis ◽  
Lina Novickytė
Keyword(s):  
Stock Market ◽  
Market Efficiency ◽  
Capital Markets ◽  
Intrinsic Value ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Current Status ◽  
Efficient Market ◽  
Baltic Countries ◽  
The Baltic

The development of the capital markets is changing the relevance and empirical validity of theefficient market hypothesis. The dynamism of capital markets determines the need for efficiency research. The authors analyse the development and the current status of the efficient market hypothesis with an emphasis on the Baltic stock market. Investors often fail to earn an excess profit, but yet stock market anomalies are observed and market prices often deviate from their intrinsic value. The article presents an analysis of the concept of efficient market. Also, the market efficiency evolution is reviewed and its current status is analysed. This paper presents also an examination of stock market efficiency in the Baltic countries. Finally, the research methods are reviewed and the methodology of testing the weak-form efficiency in a developing market is suggested. 

scholarly journals Nonlinearities and Chaos: A New Analysis of CEE Stock Markets

Mathematics ◽  
2021 ◽  
Vol 9 (7) ◽  
pp. 707
Author(s):  
Claudiu Tiberiu Albulescu ◽  
Aviral Kumar Tiwari ◽  
Phouphet Kyophilavong
Keyword(s):  
Capital Markets ◽  
Stock Markets ◽  
Transition Period ◽  
Chaotic Behavior ◽  
Efficient Market Hypothesis ◽  
Eastern European ◽  
Price Behavior ◽  
Financial Systems ◽  
Efficient Market ◽  
Level Of Significance

After a long transition period, the Central and Eastern European (CEE) capital markets have consolidated their place in the financial systems. However, little is known about the price behavior and efficiency of these markets. In this context, using a battery of tests for nonlinear and chaotic behavior, we look for the presence of nonlinearities and chaos in five CEE stock markets. We document, in general, the presence of nonlinearities and chaos which questions the efficient market hypothesis. However, if all tests highlight a chaotic behavior for the analyzed index returns, there are noteworthy differences between the analyzed stock markets underlined by nonlinearity tests, which question, thus, their level of significance. Moreover, the results of nonlinearity tests partially contrast the previous findings reported in the literature on the same group of stock markets, showing, thus, a change in their recent behavior, compared with the 1990s.

scholarly journals Evidence for and Against the Validity of Efficient Market Hypothesis

2018 ◽  
Vol 56 (3) ◽  
pp. 369-387
Author(s):  
Miljan Leković
Keyword(s):  
Market Efficiency ◽  
Financial Market ◽  
Efficient Market Hypothesis ◽  
Strong Form ◽  
Efficient Market ◽  
Market Anomalies ◽  
Development Path

Abstract The concept of an efficient financial market, in literature known as efficient market hypothesis (EMH), has had a long and difficult development path from the idea itself to its final conception, as one of the central paradigms in modern finance. It has been tested and critically reviewed for decades, and the two basic types of problems it has encountered are theoretical paradoxes and market anomalies. The aim of the paper is to examine the validity of EMH through various financial market efficiency tests and the results of previous research. The intention is to answer the question of whether, despite theoretical paradoxes and market anomalies, the notion of validity can be attributed to the concept of an efficient financial market. In this regard, the paper presents plenty of evidence for and against the validity of weak, semi-strong, and strong form of EMH, to conclude that, even after more than half a century of research, financial literature has not reached a consensus on the presence or absence of the validity of this hypothesis.

scholarly journals The changing landscape of economy: social and technological progress in explaining the informational efficiency of capital markets

2020 ◽  
Vol 14 (1) ◽  
pp. 940-952
Author(s):  
Iuliana Ursu
Keyword(s):  
Market Efficiency ◽  
Capital Markets ◽  
Technological Progress ◽  
Bayesian Model Averaging ◽  
Negative Impact ◽  
Efficient Market Hypothesis ◽  
Social Progress ◽  
Informational Efficiency ◽  
Market Mechanisms ◽  
The Impact

AbstractIn today’s ever-changing landscape of economy, one of the fundamental problems remains whether market mechanisms are functioning in an efficient way, and which are the variables impacting those levels of efficiency. The main objectives of the present paper are to contribute to a better understanding of market mechanisms, by testing the Efficient market hypothesis on its weak form at a macroeconomic level, and to assess the impact of technological and social progress, measured through different variables, on markets informational efficiency. We use an adapted version of L. Kristoufek si M. Vosvrda (L. Kristoufek, M. Vosvrda, 2013, 184) methodology for Efficiency Index, based on long term memory (using 2 estimators), fractal dimension (using 11 estimators), and entropy (estimated through the approximate entropy), in order to assess the levels of efficiency for 20 market indices from both developed and emerging or frontier economies, from the Eurasia region. Further on, by using the Bayesian Model Averaging (BMA), we study the impact of technological and social progress on markets informational efficiency. Main results of the study reveal the existence of a market dynamics characterized by areas with distinctive levels of “informational efficiency”, within both developed and emerging economies, encompassing a non-negligible link between past and present, persistence or anti-persistence, and a high data complexity. Moreover, while studying the relationship between market efficiency and social and technological progress, we observe that variables such as Government Effectiveness, or Control of Corruption, have a positive impact on the levels of efficiency of capital markets, while most of the technological progress estimators (amongst which Computer, communications and other services (% of commercial service exports), or Individuals using the Internet (% of population)), have a negative impact, translated into a decrease of informational market efficiency on the short run (the rise of high frequency trading).

scholarly journals Stock Investment and Excess Returns: A Critical Review in the Light of the Efficient Market Hypothesis

2019 ◽  
Vol 12 (2) ◽  
pp. 97 ◽  
Author(s):  
Qianwei Ying ◽  
Tahir Yousaf ◽  
Qurat ul Ain ◽  
Yasmeen Akhtar ◽  
Muhammad Shahid Rasheed
Keyword(s):  
Capital Markets ◽  
Stock Prices ◽  
Intrinsic Value ◽  
Efficient Market Hypothesis ◽  
Investment Strategies ◽  
Excess Returns ◽  
Efficient Market ◽  
Market Anomalies ◽  
Replication Studies ◽  
Stock Investment

The expansion of investment strategies and capital markets is altering the significance and empirical rationality of the Efficient Market Hypothesis. The vitality of capital markets is essential for efficiency research. The authors explore here the development and contemporary status of the efficient market hypothesis by emphasizing anomaly/excess returns. Investors often fail to get excess returns; however, thus far, market anomalies have been witnessed and stock prices have diverged from their intrinsic value. This paper presents an analysis of anomaly returns in the presence of the theory of the efficient market. Moreover, the market efficiency progression is reviewed and its present status is explored. Finally, the authors provide enough evidence of a data snooping issue, which violates and challenges the existing proof and creates room for replication studies in modern finance.

scholarly journals An approach of spectrum analysis to the stock prediction

2020 ◽  
Author(s):  
James L. Luo
Keyword(s):  
Game Theory ◽  
Asymmetric Information ◽  
Capital Markets ◽  
Spectrum Analysis ◽  
Efficient Market Hypothesis ◽  
Human Action ◽  
Efficient Market ◽  
New Approach ◽  
Validity Test ◽  
Lot Sizes

This article constructs a brand new approach to the prediction of capital markets in the perspective of Volume Spectrum Analysis (VSA). Unlike all traditional financial theories, the model of VSA features volume rather than price and focuses on its inner structure, i.e. the distribution of lot sizes that reveals asymmetric information in trading, which rejects the assumption of perfect information in Efficient Market Hypothesis (EMH) and makes the validity test possible. The flaw of modern finance, that is, taking the normality of price changes for granted, and those of other solutions such as game theory, are investigated to show why it is only VSA that may capture the essence of human action in capital markets.

Does annual report readability explain the accrual anomaly?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ming Liu ◽  
Zhefeng Liu
Keyword(s):  
Market Efficiency ◽  
Annual Report ◽  
Efficient Market Hypothesis ◽  
Annual Reports ◽  
Accrual Anomaly ◽  
Efficient Market ◽  
Content Type ◽  
Market Friction ◽  
Unbiased Manner ◽  
Red Flag

PurposeThe purpose of the study is to investigate the possible role of annual report readability in accrual anomaly, shedding light on why investors fail to incorporate accruals information in a timely and unbiased manner beyond the original naive investor fixation explanation.Design/methodology/approachUsing five proxies of annual report readability and available data over 1993–2017, we investigate whether accrual overpricing is more severe when annual reports are less readable.FindingsWe find little (substantive) evidence of accrual overpricing among high (low) readability firms. The readability effects are contingent on the level of business complexity and earnings management.Research limitations/implicationsThis study extends the original naive investor fixation explanation and documents annual report complexity as a market friction in explaining the accrual anomaly, contributing to the mispricing vs risk debate and supporting the efficient market hypothesis.Practical implicationsLow readability of annual reports is a red flag to investors.Social implicationsThis study provides support for regulatory initiatives aimed at enhancing readability of corporate disclosures to address market frictions and improve market efficiency.Originality/valueAccrual anomaly has posed a challenge to the efficient market hypothesis. This study draws on and adds to the line of research indicating that annual report complexity is a friction erecting a barrier to transparency, hindering market efficiency. This study contributes to our understanding of the enigmatic accrual anomaly.

An extended list of calendar anomalies in the context of the efficient market hypothesis

2021 ◽  
Vol 93 (2) ◽  
pp. 89-101
Author(s):  
Marcin Fuksiewicz
Keyword(s):  
Capital Markets ◽  
Foreign Capital ◽  
Efficient Market Hypothesis ◽  
Commodity Markets ◽  
Short Term ◽  
Efficient Market ◽  
Monday Effect ◽  
The Usa ◽  
Calendar Anomalies ◽  
Phases Of The Moon

The efficient market hypothesis is commonly tested mainly with regard to capital markets, but it has also been applied to currency and commodity markets. Although the theory has been used to confirm that different markets vary in their effectiveness, certain cyclical anomalies can be observed in these markets. Particularly noteworthy are calendar anomalies, which can be used to develop investment methods and procedures. In addition to commonly known anomalies, such as the January or the December Effect, or short-term ones, like the Friday or Monday Effect, there are many others that are largely unknown in Poland, such as those related to the Presidential Election Cycle in the USA or very short-lived ones, associated with individual hours of investing in a trading session. The aim of the article is to present a possibly complete list of calendar anomalies recognized in foreign capital markets, but largely unknown in Poland, such as short-lived anomalies and exotic ones (e.g. related to phases of the moon).

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