scholarly journals Empirical Testing of the Response of Czech Stock Market to Downgrades of Greek Credit Rating in the Light of the Efficient Market Hypothesis

2018 ◽  
Vol 9 (1) ◽  
pp. 57-71 ◽  
Author(s):  
Petr Seďa ◽  
Juan Antonio Jimber del Río ◽  
María De los Baños García-Moreno García
Keyword(s):  
Stock Market ◽  
Credit Rating ◽  
Statistical Tests ◽  
Abnormal Returns ◽  
Efficient Market Hypothesis ◽  
Empirical Testing ◽  
Efficient Market ◽  
Nonparametric Statistical ◽  
The Impact ◽  
Analytical Approaches

Empirical testing of the linkages between macroeconomic news and asset price movements in terms of response to released macroeconomic information have been a subject of many investigations using different testing methods. The objective of this paper is to study the impact of announcements of Greek credit rating downgrades on the prices of the most liquid assets quoted in the Czech stock market. This issue is tightly related to semi-strong form of the efficient market hypothesis, which is one of possible analytical approaches when analyzing behaviour of assets in financial markets. The reaction of the Czech stock market is assessed in relation to seven announcements of Moody´s rating agency regarding changes of credit rating of Greek government bonds in the period 2009–2012. For the purpose of this paper, the event study methodology is applied. The basic idea of this statistical method is to determine values of abnormal returns, which can be defined as a difference between actual and equilibrium returns. In order to calculate equilibrium returns, the Capital Asset Pricing Model (CAPM) is used. The differences between actual and equilibrium returns are then verified with a help of selected nonparametric statistical tests. Namely, the exact sign test and the Wilcoxon signed-rank test are utilized. Based on results of nonparametric statistical tests, the null hypothesis of information efficiency of the Czech stock market is conclusively rejected.

scholarly journals Stock market under the 2016 Brazilian presidential impeachment: a test in the semi-strong form of the efficient market hypothesis,

2018 ◽  
Vol 29 (78) ◽  
pp. 405-417
Author(s):  
Alexandre Ricardo de Aragão Batista ◽  
Uxi Maia ◽  
Alécio Romero
Keyword(s):  
Stock Market ◽  
Moving Average ◽  
Abnormal Returns ◽  
Efficient Market Hypothesis ◽  
Strong Form ◽  
Autoregressive Moving Average ◽  
Specific Situation ◽  
Efficient Market ◽  
Time Series Regression ◽  
Cumulative Abnormal Returns

ABSTRACT This article aims at contributing to study the stock market’s reaction up to the point of generating significant abnormal returns or cumulative abnormal returns within the Brazilian impeachment period. By means of the efficient market hypothesis (EMH), in its semi-strong form, the purpose was verifying whether the presidential impeachment that took place in Brazil in 2016, in 3 different dates, brought the expected reaction from the stock market on the Brazilian Stocks, Commodities and Futures Exchange (BM&FBOVESPA). The theme is relevant, as it addresses aspects of politics and economic theory and their interactions in stock markets. It impacts in the area of capital markets, because this suggests that economic players can, through their expectations and information, see adverse reactions in the market. The methodology analytically employed encompasses a brief literature review as a theoretical basis about the institutions involved and it refers historically to impeachment events. Quantitatively, the methodology consists in the study of events, so that the expectations are observed by means of time-series regression models based on the autoregressive-moving-average (ARMA) models. The result found, under three major events that culminated in the 2016 Brazilian presidential impeachment, was that no significant statistics has been determined, at a 5% level, in all estimated windows and in all events. Statistically, it was not possible to reject the hypothesis that the abnormal returns and the cumulative abnormal returns equal zero. So, the markets have been considered to be well-informed regarding the events, in this specific situation, i.e. according to the EMH, in its semi-strong form, the markets have reacted as expected.

scholarly journals The Efficient Market Hypothesis, Price Multiples, And The German Stock Market

2011 ◽  
Vol 8 (1) ◽  
Author(s):  
Darrol J. Stanley ◽  
Michael D. Kinsman
Keyword(s):  
Stock Market ◽  
Efficient Market Hypothesis ◽  
Investment Strategy ◽  
Sharpe Ratio ◽  
High Price ◽  
Efficient Market ◽  
Investment Style ◽  
German Stock ◽  
The Impact ◽  
German Stock Market

One of the great exercises of financial research is to examine the efficiency of the stock markets. There are many reasons for this endeavor. One is due to the importance efficiency has on the allocation of capital and the impact on economic activity. Others center on the desire to find an exploitable anomaly for active investment management. This paper sought to do both. The paper explores the German stock market over a five year period ending December 31, 2007. The objective was to examine the value of price multiples in developing portfolios that would not only question the efficient market hypothesis for the market but provide an investment tool to achieve above market risk adjusted returns for an active investment style. The paper explored this by creating portfolios of (1) top ranked (low) price multiples and (2) bottom ranked (high) price multiples. Three multiples were chosen. These were (1) Price to Book (PBK); (2) Price to Current Earnings (PEC), and (3) Price to Normalized Earnings (PER). The hypotheses were that low price multiples would outperform, on a risk adjusted basis, high price multiples, and hedged (long/short) would likewise outperform the market on a risk adjusted basis. Support for either of these hypotheses questions the efficiency of the markets and could provide a pragmatic investment strategy. The results of the study suggest not only that the efficiency of the German stock market can be questioned but that a workable investment strategy involving price multiples could be implemented. The results noted that low price multiples outperformed high price multiples in all cases but not necessarily on a risk adjusted basis. Hedged portfolios likewise outperformed the universe and population. Hedged PBK had an Adjusted Sharpe Ratio of 0.50; the Hedged PEC had an Adjusted Sharpe Ratio of 0.30; and the Hedged PER had an Adjusted Sharpe Ratio of 0.23. These should be compared against an Adjusted Sharpe Ratio for the market of 0. Finally, an equally-weighted Hedged position of PBK, PEC, and PER had an Adjusted Sharpe Ratio of 0.44.

scholarly journals The Impact of Divestment Announcements on the Share Price of Fossil Fuel Stocks

2019 ◽  
Vol 11 (11) ◽  
pp. 3122 ◽  
Author(s):  
Truzaar Dordi ◽  
Olaf Weber
Keyword(s):  
Stock Prices ◽  
Fossil Fuel ◽  
Statistical Tests ◽  
Price Change ◽  
Abnormal Returns ◽  
Efficient Market Hypothesis ◽  
Share Price ◽  
Short Term ◽  
Share Prices ◽  
The Impact

Several prominent institutional investors concerned about climate change have announced their intention or have divested from fossil fuel shares, to limit their exposure to the industry. The act of fossil fuel divestment may directly depress share prices or stigmatize the industry’s reputation, resulting in lower share value. While there has been considerable research conducted on the performance of the fossil fuel industry, there is not yet any empirical evidence that divestment announcements influence share prices. Adopting an event study methodology, this study measures abnormal deviations in stock prices of the top 200 global oil, gas, and coal companies by proven reserves, on days of prominent divestment announcements. Events are analyzed independently and in aggregate. The results make several notable contributions. While many events experienced short-term negative abnormal returns around the event day, the effects of events were more pronounced over longer event windows following the New York Climate March, suggesting a shift in investor perception. The results also find that divestment announcements related to campaigns, pledges, and endorsements all have a significant effect over the short-term event window. Finally, the results control for the general underperformance of the industry over the estimation window, attesting that the price change is caused by divestment announcements. Several robustness tests using alternate expected returns models and statistical tests were conducted to ensure the accuracy of the result. Overall, this study finds that divestment announcements decrease the share price of the fossil fuel companies, and thus, we conclude that ‘divestors’ can influence the share price of their target companies. Theoretically, the result adds new knowledge regarding the efficacy of the efficient market hypothesis in relation to divestment.

scholarly journals The Long-Run Impact of Information Security Breach Announcements on Investors’ Confidence: The Context of Efficient Market Hypothesis

2021 ◽  
Vol 13 (3) ◽  
pp. 1066
Author(s):  
Syed Emad Azhar Ali ◽  
Fong-Woon Lai ◽  
Rohail Hassan ◽  
Muhammad Kashif Shad
Keyword(s):  
Sustainable Development ◽  
Information Security ◽  
Information And Communication Technologies ◽  
Abnormal Returns ◽  
Efficient Market Hypothesis ◽  
Potential Threat ◽  
Efficient Market ◽  
Equity Risk ◽  
Long Run ◽  
The Impact

Information and communication technologies (ICTs) are the cornerstone for sustainable development, but if they are not appropriately managed, they will impede progress towards the United Nations Global Sustainable Development Goals. Among undesirable impacts, emphasis must be put on the risk of information security (ISec) breaches, as they pose a potential threat to businesses there. Especially for publicly traded firms, they could create a long-lasting influence on their financial performance and, thus, stock investors’ confidence. Following the efficient market hypothesis’s footsteps, previous studies have examined only the short-run impact on investors’ confidence ensuing to ISec breach announcements. Therefore, this study investigates the long-run impact of ISec breach announcements on investors’ confidence. Based on a sample of 73 ISec breach announcements during 2011–2019, this paper examines the impact on investors’ confidence, as demonstrated by long-run abnormal returns and equity risk of those firms. Using a one-to-one matched sampling approach, each firm’s performance is analyzed with its control firm over eighteen months, starting six months before the announcement, through twelve months after the announcement. Firms experienced a significant negative abnormal return of 15% to 18% during the twelve months following the breach announcement. In comparison, equity risk increased by 11% within six months before and after an announcement. This study can help investors, managers, and researchers better understand a long-term relationship between ISec breaches and investor confidence in the context of efficient market hypothesis.

scholarly journals COVID-19 AND STOCK RETURNS: EVIDENCE FROM MALAYSIA

2021 ◽  
Vol 16 (Number 2) ◽  
pp. 111-140
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Abnormal Returns ◽  
Movement Control ◽  
Efficient Market Hypothesis ◽  
Early Stages ◽  
Financial Panic ◽  
The Government ◽  
Control Orders ◽  
The Impact

The severe acute respiratory syndrome (SARS) coronavirus or Covid-19 has affected the world unprecedentedly. Malaysia is not exempted from its impact. The Malaysian government announced a nationwide lockdown in the middle of March 2020. The magnitude of the outbreak had caused panic to the public and financial panic in the stock market. This study examined the impact of Covid-19 cases and the action taken by the government through movement control orders (MCOs) and economic stimulus packages in the stock market. Event study methodology was used to assess the impact of Covid-19 on stock returns in Bursa Malaysia. Consistent with the efficient market hypothesis, the study found that during the early stages of the MCOs, the cumulative average abnormal returns (CAAR) reflected significant negative returns. However, it showed positive returns after MCO 3 and MCO 4. The results implied that the market perceived that the pandemic was under control. The study also revealed a significant relationship between CAAR and the number of cases announced, supporting the notion that in a less to a moderately free country such as Malaysia, investors showed a certain lack of trust in the number of cases reported by the authorities, and thus overreacted to the number of reported cases. The stimulus packages that were expected to stabilise the economy and society were found to be positively significant during the early stages of the MCOs.

scholarly journals Memory Effects on Saudi Arabian Stock Market – Empirical Evidence

2009 ◽  
Vol 1 (2) ◽  
Author(s):  
Khalid ALKHATHLAN ◽  
Sella PRABAKARAN
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Linear Models ◽  
Statistical Tests ◽  
Saudi Arabian ◽  
Efficient Market Hypothesis ◽  
Memory Effects ◽  
Efficient Market ◽  
Non Linear ◽  
Portfolio Managers

This paper makes a serious endeavor to investigate whether there exists a need to study the use of non-linear models to test the survival of memory effects in a developing stock market like Saudi Arabia, performing thereon the various statistical tests for the normality of data. It also discussing how various authors are challenging the efficient market hypothesis. This has led to the use of non-linear dynamic systems for modeling movement in stock prices. In order to confirm whether the efficient market hypothesis is applicable to the Saudi Arabian Stock Market, the study has used the TADAWUL returns for the last two decade and tested them for normality. And also find out the various features of the logarithmic return spectrum of the Saudi Arabian stock markets. It also scrutinizes the possible existence of dependencies and memory effects in the return processes. In particular, it performs Rescaled Range (R/S) analysis. The results throw up several intriguing issues of relevance to portfolio managers, stock market players and analysts and academicians. Key Words: EMH, Chaos, Brownian Motion, R/S method, TASI     

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

GIS Business ◽  
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.

Non-Linearity and Chaotic Behaviour in Cyprus Stock Market

2015 ◽  
Vol 5 (4) ◽  
Author(s):  
Athina Bougioukou
Keyword(s):  
Lyapunov Exponent ◽  
Stock Market ◽  
Chaos Theory ◽  
Linear Dependence ◽  
Chaotic Behavior ◽  
Efficient Market Hypothesis ◽  
Chaotic Behaviour ◽  
Maximum Lyapunov Exponent ◽  
Efficient Market ◽  
General Index

The intention of this research is to investigate the aspect of non-linearity and chaotic behavior of the Cyprus stock market. For this purpose, we use non-linearity and chaos theory. We perform BDS, Hinich-Bispectral tests and compute Lyapunov exponent of the Cyprus General index. The results show that existence of non-linear dependence and chaotic features as the maximum Lyapunov exponent was found to be positive. This study is important because chaos and efficient market hypothesis are mutually exclusive aspects. The efficient market hypothesis which requires returns to be independent and identically distributed (i.i.d.) cannot be accepted.

scholarly journals The Impact of COVID-19 on the Stock Price of Socially Responsible Enterprises: An Empirical Study in Taiwan Stock Market

2021 ◽  
Vol 18 (4) ◽  
pp. 1398
Author(s):  
Kuo-Jung Lee ◽  
Su-Lien Lu
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Abnormal Returns ◽  
Recovery Phase ◽  
Socially Responsible ◽  
Cumulative Impact ◽  
Study Approach ◽  
Price Performance ◽  
The Impact

This study examines the impact of the COVID-19 outbreak on the Taiwan stock market and investigates whether companies with a commitment to corporate social responsibility (CSR) were less affected. This study uses a selection of companies provided by CommonWealth magazine to classify the listed companies in Taiwan as CSR and non-CSR companies. The event study approach is applied to examine the change in the stock prices of CSR companies after the first COVID-19 outbreak in Taiwan. The empirical results indicate that the stock prices of all companies generated significantly negative abnormal returns and negative cumulative abnormal returns after the outbreak. Compared with all companies and with non-CSR companies, CSR companies were less affected by the outbreak; their stock prices were relatively resistant to the fall and they recovered faster. In addition, the cumulative impact of the COVID-19 on the stock prices of CSR companies is smaller than that of non-CSR companies on both short- and long-term bases. However, the stock price performance of non-CSR companies was not weaker than that of CSR companies during times when the impact of the pandemic was lower or during the price recovery phase.

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

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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