APPLICATIONS OF AN SPRT-LIKE TEST IN PARI-MUTUEL WAGERING

2013 ◽  
Vol 4 (2) ◽  
pp. 63-78
Author(s):  
Lisa Porth ◽  
Earl Rosenbloom
Keyword(s):  
Market Efficiency ◽  
Financial Market ◽  
Hedge Funds ◽  
Regression Equation ◽  
Statistical Arbitrage

Pari-mutuel wagering functions as a very simple financial market, and has therefore been important in studying market efficiency.  In this study, an SPRT-like test reveals that probabilities from the win pool corrected for the favourite longshot bias using Asch and Quandt’s regression equation can be used to exploit the exacta pool, and probabilities obtained from the exacta pool can be used to exploit the win pool.  These finding differ from previously published studies that maintain that the win pool is largely efficient.  Further, these findings mirror statistical arbitrage strategies utilized by hedge funds, where pricing inefficiencies are exploited between related assets.

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.

Analysis of the Effects of Security Breaches on Firm Value

2018 ◽  
Vol 19 (2) ◽  
pp. 1-25
Author(s):  
Stoyu Ivanov
Keyword(s):  
Market Efficiency ◽  
Market Microstructure ◽  
Hedge Funds ◽  
High Frequency ◽  
Firm Value ◽  
Trading Strategies ◽  
Average Price ◽  
Scarce Resources ◽  
Corporate Security ◽  
Security Breaches

The purpose of this study is to examine, on intradaily market microstructure basis, fifteen recent occurrences of corporate security breaches to extend our understanding of market efficiency. We document minor average price responses to announcements of a security breach in the firms??target of an attack, contrary to many other corporate announcement studies, which document immediate price reaction to an announcement. Surprisingly, we find that the matching firms in our study have a stronger market microstructure response to the announcement of the attack instead. This study suggests to high-frequency investors, such as hedge funds, that they should focus their attention and scarce resources on developing trading strategies on other corporate events and announcements rather than on the announcement of security breaches.

MEASURING AND MONITORING THE EFFICIENCY OF MARKETS

2017 ◽  
Vol 20 (08) ◽  
pp. 1750051 ◽  
Author(s):  
DILIP B. MADAN ◽  
WIM SCHOUTENS ◽  
KING WANG
Keyword(s):  
Market Efficiency ◽  
Hedge Funds ◽  
Economic Activity ◽  
Hedge Fund ◽  
Exchange Traded Funds ◽  
Acceptability Index ◽  
Hedge Fund Returns

Market efficiency is measured by arbitrage proximity. The level of efficiency is calibrated by extent of a distortion of probability required to neutralize the drift. Simulations of bilateral gamma models estimated from past returns deliver for each asset on each day an empirical acceptability index. The assets covered include equities, commodities, currencies, volatility and hedge fund returns. It is observed that efficiency in equity is related to the process for up moves having more frequent and smaller jumps than its down side counterpart. For commodities the situation is reversed. Volatility indices trade more efficiently than equities, commodities, or currencies. Hedge fund returns reflect lower levels of efficiency supportive of hedge funds effectively exploiting market inefficiences. The relative inefficiency of the absence of trading is noted on comparing close to open with open to close returns. Small capitalization stocks trade more efficiently than the large ones. Sector exchange traded funds trade more efficiently than the S&P 500 index. Furthermore, economic activity reflected in greater high low spreads enhance market efficiency.

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