How Competitive is the Stock Market? Theory, Evidence from Portfolios, and Implications for the Rise of Passive Investing

In developed market economies, the stock market is a major conduit of financial resources from surplus units to deficit units. This transfer of funds is mutually advantageous to both parties. The recipients of these funds, publicly owned companies, are enabled to utilise them in profitable investments, while the surplus units, ultimately households, are provided an opportunity in sharing in the future profits of these enterprises. More importantly, by providing an active market for existing corporate securities, the stock market is also able to fulfil the liquidity needs of surplus units. The most significant academic developments in finance in the past twentyfive years have been portfolio theory, capital market theory, and efficient market theory, collectively called modem finance theory. These modem developments, based on the pioneering works of Markowitz (1959) and Sharpe (1964), and accumulating empirical evidence suggest that financial investors are well advised to make their decisions assuming that security prices fully and instantaneously reflect all publicly available information. This proposition is often referred to as the random walk hypothesis, which implies that successive security prices/returns are not statistically associated.

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Corporate governance and stock liquidity: evidence from a speculative market

Accounting Research Journal ◽

10.1108/arj-01-2019-0005 ◽

2020 ◽

Vol 33 (2) ◽

pp. 323-341 ◽

Cited By ~ 2

Author(s):

Pallab Kumar Biswas

Keyword(s):

Corporate Governance ◽

Stock Market ◽

Empirical Support ◽

Market Liquidity ◽

Policy Implications ◽

Market Manipulation ◽

Market Theory ◽

Stock Liquidity ◽

Content Type ◽

Governance Quality

Purpose Grounded in lemon market theory, this paper aims to examine the influence of corporate governance (CG) on stock market liquidity in Bangladesh, where stock market manipulation because of speculative trading is a common concern. Design/methodology/approach This study is based on a sample of 2,420 firm-year observations covering all non-financial firms in Bangladesh from 1996 to 2011. Findings This study’s results show a significant relationship between governance and liquidity within firms over time. In particular, within firms, when governance quality increases, liquidity significantly improves. For instance, a rise in the governance quality by one standard deviation decreases the illiquidity ratio by 55.97%. The results are unlikely to be confounded by endogeneity. Practical implications The results have important policy implications for security regulators, investors, traders and managers. The results support the current regulatory trend of strengthening CG practices in the listed firms in Bangladesh. Originality/value This study contributes to the understanding of the role of effective firm-level CG on stock liquidity in the context of an emerging country. Consistent with prior research mostly conducted in the advanced economies, it provides further empirical support that higher CG quality reduces the information asymmetry problem and enhances stock liquidity even in a speculative market.

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Institutional barriers to entry in the Hong Kong stock market : theory, evidence and policy

10.5353/th_b3120751 ◽

1984 ◽

Author(s):

E. M Ancrum

Keyword(s):

Hong Kong ◽

Stock Market ◽

Barriers To Entry ◽

Market Theory ◽

Institutional Barriers ◽

Hong Kong Stock Market

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Profitability of investment strategies developed on the basis of buy and sell recommendations

Journal of Economics and Management ◽

10.22367/jem.2021.43.15 ◽

2021 ◽

Vol 43 ◽

pp. 317-338

Author(s):

Paweł Wnuczak ◽

Keyword(s):

Stock Market ◽

Capital Market ◽

Stock Exchange ◽

Investment Strategy ◽

Jel Classification ◽

Theory And Practice ◽

Investment Strategies ◽

Market Theory ◽

Rates Of Return ◽

Long Run

Aim/purpose – The paper has two objectives. The first is to examine the profitability of applying investment strategies based on “buy” and “sell” recommendations issued by stock market analysts. The second objective is to validate that analysts who issue a rec- ommendation may not be impartial (not supporting any of the sides involved in an argu- ment) because the largest group of recommendations issued is “buy” recommendations. Design/methodology/approach – This study was conducted based on all the “buy” and “sell” recommendations issued during the period between January 1, 2004 and Decem- ber 31, 2016 for companies listed on the Warsaw Stock Exchange, using data from www.bankier.pl. The annual forecast rates of return were determined for all the recom- mendations included in the survey. The expected rates of return were determined for each recommendation based on the information collated from the Bloomberg database. The regression analysis enabled the exploration of the relationship between the actual rates of return and the rates of return predicted in recommendations. Findings – It was determined that investing on the basis of the information included in “sell” recommendations might make it possible to avoid unprofitable investments. At the same time, the study shows that an investment strategy compliant with “buy” recom- mendations does not let the investor achieve the expected rates of return on an invest- ment in the capital market in the long term. Research implications/limitations – The conducted research could be an important source of information for stock market investors’ decision-making regarding investments Originality/value/contribution – Despite the topic of recommendation effectiveness being very important from the perspective of capital market theory and practice, it is still unclear whether investing based on information provided in stock market recommenda- tions can be a profitable strategy in the long run. The study offers a bridge to fill the existing research gap. Keywords: recommendations, stock exchange, investment. JEL Classification: G140

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Test of Weak Efficiency on Casablanca Stock Market, Chaotic Dynamic and Long Memory

Global Journal of Management and Business Research ◽

10.34257/gjmbrbvol20is3pg27 ◽

2020 ◽

pp. 27-41

Author(s):

El Mehdi Falloul

Keyword(s):

Lyapunov Exponent ◽

Stock Market ◽

Long Memory ◽

Chaotic Dynamic ◽

Weak Form ◽

Weak Efficiency ◽

Market Theory ◽

Efficient Market Theory ◽

Econometric Tests ◽

Weak Form Efficiency

This paper aim to investigate the weak form efficiency of the Casablanca Moroccan stock market. After a brief explanation of the efficient market theory developped by Eygene Fama, we have made the whole classical econometric tests used to test the weak form efficiency, this is made by using MASI index that represents the whole stocks in Casablanca stock market. At the end of this study, we have rejected the hypothesis of efficience of Casablanca Stock market, and we have deduced that MASI is caracterised aby a choatic dynamic that we have cvalidated by calculation of Lyapunov exponent, finally and in order to judge the model that represent the MASI we have modeled MASI index using the process ARFIMA (p,dq) and we have deduced that MASI is caracterized by a long memory.

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