Financial Market Efficiency Index (FMEI) - A Qualitative Tool for Financial Markets

2018 ◽  
Author(s):  
Rishi Mehra
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Financial Market ◽  
Efficiency Index

Herding behaviour and Islamic market efficiency assessment: case of Dow Jones and Sukuk market

2019 ◽  
Vol 13 (1) ◽  
pp. 24-41
Author(s):  
Emna Mnif ◽  
Bassem Salhi ◽  
Anis Jarboui
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Hurst Exponent ◽  
Efficiency Index ◽  
Parameter Method ◽  
Content Type ◽  
Efficiency Assessment ◽  
Time Varying Parameter ◽  
Activity Types ◽  
The Impact

Purpose The purpose of this paper is to present the Islamic stock and Sukuk market efficiency and focus on the presence of investor herding behaviour (HB) captured by Hurst exponent estimation. Design/methodology/approach The Hurst exponent was estimated with various methods. The authors studied the evolving efficiency of the “Dow Jones” indices from 1 January 2010 to 30 December 2016 using a rolling sample of the Hurst exponent. In addition, they used a time-varying parameter method based on the Hurst of delayed returns. After that, the robust Hurst method was considered. In the next step, the efficiency of the different activity types of Islamic bonds was studied using an efficiency index. Finally, the Hurst exponent estimates were applied to assess the presence of HB. Findings The results show that, firstly, there’s a strong correlation between the “DJIM” and “DJSI” prices and returns. Secondly, by using robust Hurst estimate, it is observed that the “DJIM” is the most efficient market. The Hurst exponent estimation results show that HB is more intensive in the Islamic stock market. These results indicate also the inexistence of this behaviour in the studied Sukuk market. Research limitations/implications Sukuk as Islamic financial assets is recent. Their relative time series are not long enough to apply the long memory approach. Furthermore, this work can be extended to study other Islamic financial markets. Practical implications Herding affects risk-return characteristics of assets and has an impact on asset pricing models. Practitioners are interested in understanding herding and its timing as it might create profitable trading opportunities. Social implications This work analyses the impact of Islamic principles on the financial markets and their ability to understand some behavioural biases. Originality/value This study contributes to the literature by identifying the efficiency and the presence of HB with Hurst exponent estimation in Islamic markets.

scholarly journals Behavior of financial markets efficiency during the financial market crisis: 2007 – 2009

2014 ◽  
Vol 11 (2) ◽  
pp. 473-487 ◽  
Author(s):  
Ronald Henry Mynhardt ◽  
Alexey Plastun ◽  
Inna Makarenko
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Financial Market ◽  
Hurst Exponent ◽  
Developed Countries ◽  
Market Analysis ◽  
Financial Market Crisis ◽  
Financial Market Analysis

This paper examines the behavior of financial markets efficiency during the recent financial market crisis. Using the Hurst exponent as a criterion of market efficiency we show that level of market efficiency is different for pre-crisis and crisis periods. We also classify financial markets of different countries by the level of their efficiency and reaffirm that financial markets of developed countries are more efficient than the developing ones. Based on Ukrainian financial market analysis we show the reasons of inefficiency of financial markets and provide some recommendations on their solution and thus improving the efficiency.

Sell-Side Information Production in Financial Markets

2012 ◽  
Vol 47 (4) ◽  
pp. 763-794 ◽  
Author(s):  
Zhaohui Chen ◽  
William J. Wilhelm
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Financial Market ◽  
Production Technology ◽  
Private Information ◽  
Side Information ◽  
Investment Banking ◽  
Information Production ◽  
Advisory Services ◽  
Proprietary Trading

AbstractWe study decisions to sell nonexcludable private information in the presence of a trading opportunity. Sell-side agents heighten competition among agents who buy their signals to combine with their own for proprietary trading purposes and thereby promote financial market efficiency. This result holds even when the sell-side production technology is not unique. But sell-side information is subject to underinvestment if producers do not internalize the benefits. The model suggests that fee-based compensation for corporate advisory services diminishes this problem and that market efficiency is undermined by forces steering investment-banking resources toward proprietary trading.

scholarly journals Excessive self-confidence: The initiator of the irrational in behavioral finance

2020 ◽  
Vol 22 (2) ◽  
pp. 97-108
Author(s):  
Aleksandar Dogandžić ◽  
Nebojša Stošić ◽  
Sonja Dogandžić
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Market Efficiency ◽  
Financial Market ◽  
Behavioral Finance ◽  
Decision Making Process ◽  
Self Confidence ◽  
Irrational Behavior ◽  
The Subject ◽  
Decision Making Behavior

The classical theory of financial markets is based on the decision-making process based on hypotheses about "market efficiency", which implies rational decisionmaking that always brings the expected results that can be predicted and calculated. However, practice shows that there are situations of irrational decision-making in the markets, the results of which are far from predictable and expected. We need to study these situations through Behavioral Finance, which allows us to monitor the results of irrational decision-making behavior, which we call anomalies. Most irrational decisions are based on excessive self-confidence, so it is the subject of necessary continuous research in order to clarify this segment of irrational behavior in the behavior of actors in the financial market and thus use it to achieve optimal effects.

scholarly journals Valuing Peace: The Effects of Financial Market Exposure on Votes and Political Attitudes

Econometrica ◽  
2019 ◽  
Vol 87 (5) ◽  
pp. 1561-1588 ◽  
Author(s):  
Saumitra Jha ◽  
Moses Shayo
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Political Attitudes ◽  
Peace Process ◽  
Superior Performance ◽  
Financial Assets ◽  
Material Incentive ◽  
Nonfinancial Information ◽  
Political Messages ◽  
Economic Risks

Can participation in financial markets lead individuals to reevaluate the costs of conflict, change their political attitudes, and even their votes? Prior to the 2015 Israeli elections, we randomly assigned Palestinian and Israeli financial assets to likely voters and incentivized them to actively trade for up to 7 weeks. No political messages or nonfinancial information were included. The treatment systematically shifted vote choices toward parties more supportive of the peace process. This effect is not due to a direct material incentive to vote a particular way. Rather, the treatment reduces opposition to concessions for peace and changes awareness of the broader economic risks of conflict. While participants who were assigned Palestinian assets are more likely to associate their assets' performance with peace, they are less engaged in the experiment. Combined with the superior performance of Israeli stocks during the study period, the ultimate effects of Israeli and Palestinian assets are similar.

Heuristic biases in investment decision-making and perceived market efficiency

2018 ◽  
Vol 10 (1) ◽  
pp. 85-110 ◽  
Author(s):  
Syed Zulfiqar Ali Shah ◽  
Maqsood Ahmad ◽  
Faisal Mahmood
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Negative Impact ◽  
Investment Decisions ◽  
Sampling Technique ◽  
Investment Strategy ◽  
Individual Investors ◽  
Content Type ◽  
Specific Investment ◽  
The Relationship

Purpose This paper aims to clarify the mechanism by which heuristics influences the investment decisions of individual investors, actively trading on the Pakistan Stock Exchange (PSX), and the perceived efficiency of the market. Most studies focus on well-developed financial markets and very little is known about investors’ behaviour in less developed financial markets or emerging markets. The present study contributes to filling this gap in the literature. Design/methodology/approach Investors’ heuristic biases have been measured using a questionnaire, containing numerous items, including indicators of speculators, investment decisions and perceived market efficiency variables. The sample consists of 143 investors trading on the PSX. A convenient, purposively sampling technique was used for data collection. To examine the relationship between heuristic biases, investment decisions and perceived market efficiency, hypotheses were tested by using correlation and regression analysis. Findings The paper provides empirical insights into the relationship of heuristic biases, investment decisions and perceived market efficiency. The results suggest that heuristic biases (overconfidence, representativeness, availability and anchoring) have a markedly negative impact on investment decisions made by individual investors actively trading on the PSX and on perceived market efficiency. Research limitations/implications The primary limitation of the empirical review is the tiny size of the sample. A larger sample would have given more trustworthy results and could have empowered a more extensive scope of investigation. Practical implications The paper encourages investors to avoid relying on heuristics or their feelings when making investments. It provides awareness and understanding of heuristic biases in investment management, which could be very useful for decision makers and professionals in financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This paper helps investors to select better investment tools and avoid repeating expensive errors, which occur due to heuristic biases. They can improve their performance by recognizing their biases and errors of judgment, to which we are all prone, resulting in a more efficient market. So, it is necessary to focus on a specific investment strategy to control “mental mistakes” by investors, due to heuristic biases. Originality/value The current study is the first of its kind, focusing on the link between heuristics, individual investment decisions and perceived market efficiency within the specific context of Pakistan.

Critical Value-Based Power Options Pricing Problems in Uncertain Financial Markets

2021 ◽  
pp. 2150002
Author(s):  
Guimin Yang ◽  
Yuanguo Zhu
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Numerical Experiments ◽  
Critical Value ◽  
The Other ◽  
Options Pricing ◽  
Underlying Asset ◽  
Pricing Problems ◽  
Fractional Differential ◽  
The One

Compared with investing an ordinary options, investing the power options may possibly yield greater returns. On the one hand, the power option is the best choice for those who want to maximize the leverage of the underlying market movements. On the other hand, power options can also prevent the financial market changes caused by the sharp fluctuations of the underlying assets. In this paper, we investigate the power option pricing problem in which the price of the underlying asset follows the Ornstein–Uhlenbeck type of model involving an uncertain fractional differential equation. Based on critical value criterion, the pricing formulas of European power options are derived. Finally, some numerical experiments are performed to illustrate the results.

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