Trading strategy using share buybacks: evidence from India

The efficient market hypothesis states that in the efficient markets, participants cannot make extra-normal returns by exploiting any publicly available information. However, traders are constantly looking to exploit publicly available information to generate abnormal returns for themselves and their clients. One such event is share buyback announcement, which traders can utilize to create profitable trading strategies. The authors undertake the present study to examine if share buyback announcements provide profitable trading strategies to traders. Event study methodology has been adopted to analyze buyback announcements by Indian companies from January 2012 to December 2018. Forty-one (41) day window period comprising of 20 days pre-event, an announcement day, and 20 days post-event period is created to analyze the risk-adjusted average abnormal returns. The empirical findings suggest that there are negligible trading opportunities available for investors post announcements. However, significant risk-adjusted returns are found in the pre-event window, indicating that if investors can predict buyback announcements, they may earn extra-normal returns. The study confirms that Indian stock markets are in the semi-strong form of efficiency. The study also provides a profitable trading strategy for investors in the pre-event window. Finally, it also draws the regulators’ attention to see if insider trading could be the reason for abnormal returns in the pre-event window. The authors conclude the results by confirming that Indian markets are semi-strong in market efficiency and by indicating regulatory interventions to control insider trading. AcknowledgementThe infrastructural support provided by FORE School of Management, New Delhi in completing this paper is gratefully acknowledged.

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A Competitive Approach to Financial Issues

Banking, Finance, and Accounting ◽

10.4018/978-1-4666-6268-1.ch019 ◽

2014 ◽

pp. 385-398

Author(s):

Mustafa Okur ◽

A. Osman Gurbuz

Keyword(s):

Financial Markets ◽

Asset Prices ◽

Abnormal Returns ◽

Efficient Market Hypothesis ◽

Future Research ◽

Financial Asset ◽

Efficient Market ◽

Finance Theory ◽

Available Information ◽

Financial Issues

Efficient Market Hypothesis (EMH) is a cornerstone in modern finance theory. Efficient market hypothesis states that it is impossible to make abnormal returns in financial markets because financial asset prices always reflect all available information. This chapter was undertaken in order to give a brief survey of modern finance theory by mainly focusing on the efficient market hypothesis. The authors also discuss the empirical foundations of the efficient market hypothesis. Finally, the main challenges to the efficient market hypothesis are introduced in order to point out a perspective for future research.

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The profitability of trading strategies from sharia-compliant and conventional banks in the GCC: a comparative study

Journal of Investment Compliance ◽

10.1108/joic-11-2020-0046 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Hesham I. AlMujamed

Keyword(s):

Weak Form ◽

Efficient Market Hypothesis ◽

Trading Strategy ◽

Small Sample ◽

Statistical Analyses ◽

Trading Strategies ◽

Accounting Disclosure ◽

Content Type ◽

Conventional Banks ◽

Filter Rules

Purpose The purpose of this research was to examine the effectiveness of filter rules and investigate the weak form of the efficient market hypothesis (EMH) on sample shares of shariah-compliant vs. conventional banks listed on the Gulf Cooperation Council (GCC) stock market. Design/methodology/approach Nine trading filter strategies with different statistical analyses were used as defined in the literature (Fifield et al., 2005; Almujamed et al., 2018). Daily closing equity prices of a sample of twenty shariah-compliant banks and twenty conventional banks were recorded over the 18-year period ending 31 December 2017. Findings Shares of shariah-compliant banks in the GCC were not weak-form efficient since trading based on past information was predictable, profitable and outperformed the corresponding naïve buy-and-hold trading strategy. Shares of conventional GCC banks underperformed Research limitations/implications This paper’s findings should be useful for central banks and capital market authorities in GCC countries for evaluation when considering new regulations or process changes. Limitations include small sample numbers and need for more recent evaluations of accounting disclosure levels. A wider range of data, statistical analyses and other trading strategies is needed. Potential investors (Muslim and non-Muslim), shariah supervisory boards, and preparers of financial statements can benefit from this study. Practical implications The results suggest that selection of trading strategy affects the success of the rule and that mid-sized filters are the best. Originality/value This is an innovative study comparing performance of shariah-compliant and conventional banks under different filter rules.

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A Competitive Approach to Financial Issues

Global Strategies in Banking and Finance - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-4666-4635-3.ch011 ◽

2014 ◽

pp. 173-186

Author(s):

Mustafa Okur ◽

A. Osman Gurbuz

Keyword(s):

Financial Markets ◽

Asset Prices ◽

Abnormal Returns ◽

Efficient Market Hypothesis ◽

Future Research ◽

Financial Asset ◽

Efficient Market ◽

Finance Theory ◽

Available Information ◽

Financial Issues

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An Empirical Study on Efficient Market Hypothesis with reference to FMCG Sector

GIS Business ◽

10.26643/gis.v15i1.17895 ◽

2020 ◽

Vol 15 (1) ◽

pp. 109-126

Author(s):

Nitin Tanted ◽

Prashant Mistry

Keyword(s):

Stock Prices ◽

Stock Price ◽

Abnormal Returns ◽

Weak Form ◽

Efficient Market Hypothesis ◽

Controversial Issues ◽

Efficient Market ◽

Price Movements ◽

Run Test ◽

Stock Price Movements

One of the highly controversial issues in the area of finance is “Efficient Market Hypothesis”. Efficient Market Hypothesis states that, “In an efficient market, all available price information is reflected in the stock prices and it is not possible to generate abnormal returns compared to other investors.” A lot of studies conducted previouslyto test the Efficient Market Hypothesis, confirmed the theory until recent years, when some academicians found it to be non-applicable in financial markets. According to them, it is possible to forecast the stock price movements using Technical Analysis. The results of various studies have been inconclusive and indefinite about the issue. This study attempted to test the efficiency of FMCG Sector stocks in India in its weak form. For the study, closing prices of top 10 stocks from Nifty FMCG index has been taken for the 5-year period ranging from 1st October 2014 to 30th September 2019. Wald-Wolfowitz Run test has been used to test the haphazard movements in the stock price movements. The results indicated that FMCG sector stocks does support the Efficient Market Hypothesis and exhibit efficiency in its weak form. Hence, it is not possible to accurately predict the price movements of these stocks.

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Financial institutions mergers: a strategy choice of wealth maximisation and economic value

Journal of Financial Economic Policy ◽

10.1108/jfep-06-2019-0113 ◽

2020 ◽

Vol 12 (4) ◽

pp. 495-529

Author(s):

Mohamad Hassan ◽

Evangelos Giouvris

Keyword(s):

Credit Risk ◽

Event Study ◽

Financial Institutions ◽

Value Creation ◽

Economic Value ◽

Abnormal Returns ◽

Study Analysis ◽

Event Window ◽

Content Type ◽

Merger Announcement

Purpose This study Investigates Shareholders' value adjustment in response to financial institutions (FIs) merger announcements in the immediate event window and in the extended event window. This study also investigates accounting measures performance, comparison of post-merger to pre-merger, including several cash flow measures and not just profitability measures, as the empirical literature review suggests. Finally, the authors examine FIs mergers orientations of diversification and focus create more value for shareholders (in the immediate announcement window and several months afterward) and/or generates better cash flows, profitability and less credit risk. Design/methodology/approach This study examines FIs merger effect on bidders’ shareholder’s value and on their observed performance. This examination deploys three techniques simultaneously: a) an event study analysis, to estimate and calculate abnormal returns (ARs) and cumulative abnormal returns (CARs) in the narrow windows of the merger announcement, b) buy and hold event study analysis, to estimate ARs in the wider window of the event, +50 to +230 days after the merger announcement and c) an observed performance analysis, of financial and capital efficiency measures before and after the merger announcement; return on equity, liquidity, cost to income ratio, capital to total assets ratio, net loans to total loans, credit risk, loans to deposits ratio, other expenses and total assets, economic value addition, weighted average cost of capital and return on invested capital. Deal criteria of value, mega-deals, strategic orientation (as in Ansoff (1980) growth strategies), acquiring bank size and payment method are set as individually as control variables. Findings Results show that FIs mergers destroy share value for the bidding firms pursuing a market penetration strategy. Market development and product development strategies enable shareholders’ value creation in short and long horizons. Diversification strategies do not influence bidding shareholders’ value. Local bank to bank mergers create shareholders’ value and enhance liquidity and economic value in the short run. Bank to bank cross border mergers create value for bidders’ in the long term but are associated with high costs and higher risks. Originality/value A significant advancement over the current literature is in assessing mergers, not only for bank bidders but also for the three pillars FIs of the financial sector; banks, real-estate companies and investment companies mergers. It is an improvement over current finance literature because it deploys two different strategies in the analysis. At a univariate level, shareholder value creation and market reaction to merger announcements are examined over short (−5 or +5 days) and long (+230 days) windows of the event. Followed by regressing, the resultant CARs and BHARs over financial performance variables at the multivariate level.

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An investigation of time varying market efficiency: evidence from STOXX Europe Christian index

International Journal of Ethics and Systems ◽

10.1108/ijoes-09-2020-0144 ◽

2021 ◽

Vol 37 (4) ◽

pp. 631-643

Author(s):

Tayyaba Yousaf ◽

Sadia Farooq ◽

Ahmed Muneeb Mehta

Keyword(s):

Price Index ◽

Abnormal Returns ◽

Weak Form ◽

Efficient Market Hypothesis ◽

Time Varying ◽

Content Type ◽

Daily Data ◽

New Information ◽

Academic Researchers ◽

The Impact

Purpose The purpose of this study is to investigate whether the STOXX Europe Christian price index (SECI) follows the premise of efficient market hypothesis (EMH). Design/methodology/approach The study used daily data of SECI for the period of 15 years as its launch date i.e. 31 December 2004 to 31 December 2019. Data are analyzed by taking a full-length sample and fixed-length subsample. For subsample, the data are divided into five subsamples of three years each. Subsample analysis is important for analyzing time varying efficiency of the series, as the market is said to follow EMH if it is being efficient throughout the sample. Both type of samples is examined through linear tests including autocorrelations test and variance ratio (VR) test. Findings Tests applied conclude that SECI is weak-form efficient, which means that the prices of the index include all the relevant past information and immediately react to new information. Hence, the investors cannot earn abnormal returns. Originality/value Religion-based indices grasped the attention of investors, policymakers and academic researchers because of increased concern over ethics in business. Though the impact of religion on the economy have been studied in many ways but the efficiency of religion-based indices have been less explored. The current study is primary in its nature as it analysis the efficiency of SECI. This index is important to explore because Christianity is the world’s top religion with 2.3 billion followers around the globe.

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Cluster Analysis for Evaluating Trading Strategies

The Journal of Trading ◽

10.3905/jot.2018.13.4.132 ◽

2018 ◽

Keyword(s):

Cluster Analysis ◽

Cost Analysis ◽

Trading Strategy ◽

Trading Strategies ◽

Trading Cost ◽

Clustering Technique ◽

Statistical Clustering ◽

Trader Performance

In this article, we introduce a new methodology to empirically identify the primary strategies used by a trader using only post-trade fill data. To do this, we apply a well-established statistical clustering technique called k-means to a sample of progress charts, representing the portion of the order completed by each point in the day as a measure of a trade’s aggressiveness. Our methodology identifies the primary strategies used by a trader and determines which strategy the trader used for each order in the sample. Having identified the strategy used for each order, trading cost analysis can be performed by strategy. We also discuss ways to exploit this technique to characterize trader behavior, assess trader performance, and suggest the appropriate benchmarks for each distinct trading strategy.

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Force majeure events and stock market reactions in Ukraine

Investment Management and Financial Innovations ◽

10.21511/imfi.16(1).2019.26 ◽

2019 ◽

Vol 16 (1) ◽

pp. 334-345 ◽

Cited By ~ 1

Author(s):

Guglielmo Maria Caporale ◽

Alex Plastun ◽

Inna Makarenko

Keyword(s):

Stock Market ◽

Abnormal Returns ◽

Trading Strategies ◽

Social Force ◽

Stock Market Index ◽

Market Reactions ◽

Technological Disasters ◽

Daily Data ◽

Force Majeure ◽

Student’S T

This paper examines reactions in the Ukrainian stock market to force majeure events, which are divided into four groups: economic force majeure, social force majeure, terrorist acts, natural and technological disasters. More specifically, using daily data for the main Ukrainian stock market index (namely PFTS) over the period from January 1, to December 31, 2018 this study investigates whether or not force majeure events create (temporary) inefficiencies and there exist profitable trading strategies based on exploiting them. For this purpose, cumulative abnormal returns and trading simulation approaches are used in addition to Student’s t-tests. The results suggest that the Ukrainian stock market absorbs new information rather fast. Negative returns in most cases are observed only on the day of the event. The only exception is technological disasters, the market needing up to ten days to react fully in this case. Despite the presence of a detectable pattern in price behavior after force majeure events (namely, a price decrease on the day of the event) no profitable trading strategies based on it are found as their outcomes do not differ from those generated by random trading.

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Exploring price gap anomaly in the Ukrainian stock market

Investment Management and Financial Innovations ◽

10.21511/imfi.16(2).2019.13 ◽

2019 ◽

Vol 16 (2) ◽

pp. 150-158 ◽

Cited By ~ 1

Author(s):

Alex Plastun ◽

Inna Makarenko ◽

Lyudmila Khomutenko ◽

Svitlana Shcherbak ◽

Olha Tryfonova

Keyword(s):

Stock Market ◽

Market Efficiency ◽

Statistical Tests ◽

Efficient Market Hypothesis ◽

Trading Strategy ◽

Momentum Effect ◽

Dummy Variables ◽

Price Patterns ◽

Student’S T ◽

Trading Simulation

This paper analyzes price gaps in the Ukrainian stock market for the case of UX index over the period 2009–2018. Using different statistical tests (Student’s t-tests, ANOVA, Mann-Whitney test) and regression analysis with dummy variables, as well as modified cumulative approach and trading simulation, the authors test a number of hypotheses searching for price patterns and abnormal market behavior related to price gaps: there is seasonality in price gaps (H1); price gaps generate statistical anomalies in the Ukrainian stock market (H2); upward gaps generate price patterns in the Ukrainian stock market (H3) and downward gaps generate price patterns in the Ukrainian stock market (H4). Overall results are consistent with the Efficient Market Hypothesis: there is no seasonality in price gaps and in most cases there is no evidences of price patterns or abnormal price behavior after the gaps in the Ukrainian stock market. Nevertheless, the authors find very strong and convincing evidences in favor of momentum effect on the days of negative gaps. These observations are confirmed by trading simulations: trading strategy based on detected price pattern generates profits and demonstrates overall efficiency, which is against the market efficiency. These results can be interesting both for academicians (further evidences against market efficiency) and practitioners (real and effective trading strategy to generate profits in the Ukrainian market market).

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Existence and Exploitability of Financial Analysts' Informational Leadership

Applied Finance Letters ◽

10.24135/afl.v5i2.49 ◽

2016 ◽

Vol 5 (2) ◽

Author(s):

Rainer Baule ◽

Hannes Wilke

Keyword(s):

Abnormal Returns ◽

Relevant Information ◽

Trading Strategies ◽

Information Share ◽

Time Period ◽

The Us ◽

Information Shares ◽

Set Up ◽

The One

This paper bridges two recent studies on the role of analysts to provide new and relevant information to investors. On the one hand, the contribution of analysts to long-term price discovery on the US market is rather low. Considering earnings per share forecasts as the main output of analysts’ reports, their information share amounts to only 4.6% on average. On the other hand, trading strategies set up on these EPS forecasts are quite profitable. Self-financing portfolios yield excess returns of more than 5% over the S&P 100 index for a time period of 36 years, which is persistent after controlling for the well-known risk factors. In this paper, we discuss the link between the low information shares and the high abnormal returns. We argue that information shares of analysts cannot be higher, because otherwise their forecasts would lead to excessively profitable trading strategies which are very unlikely to persist over such a long period of time.

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