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Swandari Budiarso, Novi, Abdul Wahab Hasyim, Rusman Soleman, Irfan Zam Zam, and Winston Pontoh. "Investor behavior under the Covid-19 pandemic: the case of Indonesia." Investment Management and Financial Innovations 17, no. 3 (October 1, 2020): 308–18. http://dx.doi.org/10.21511/imfi.17(3).2020.23.
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This study begins with the assumption that the existence of abnormal circumstances will force investors to take measures to protect their investments in the capital market. Recently, the stock index in the Indonesian market has been declining and continued to fall until the end of April 2020 due to the impact of the Covid-19 pandemic. In terms of efficient market theory, prospect theory and signaling theory, this study aims to analyze the relationship between risk and return in the Indonesian capital market during the Covid-19 pandemic as a manifestation of investor behavior. To test hypotheses, the correlation test, the independent sample t-test and the Cohen test for 629 public firms with 52,836 observable data are used. The findings show that for financial sectors and non-financial sectors, the fourth period differs from previous periods when the relationship between systematic risk and stock returns is positive, although only non-financial sectors have a significant effect. The results show that efficient market theory, prospect theory and signaling theory are consistent with the phenomena around the Covid-19 pandemic in Indonesia. In addition, Cohen’s test results suggest that government policies in the face of the pandemic are successful in stimulating the market.
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Yasar, Burze, Thomas Martin, and Timothy Kiessling. "An empirical test of signalling theory." Management Research Review 43, no. 11 (May 1, 2020): 1309–35. http://dx.doi.org/10.1108/mrr-08-2019-0338.
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Purpose This study aims to support and extend signalling theory because of information asymmetry. This study also aims to answer the call to further negative signalling and explore immediate reactions to signals, thus alleviating a gap with regard to temporality of signalling. Design/methodology/approach The study used two separate data sources, the S&P 500 and 51,500 pages of the public papers between 1981 and 1999, nearly 20 years of data. Inter-rater reliability, controlled for all macroeconomic announcements identified in the literature, is used, and the data are empirically tested using generalized autoregressive conditional heteroscedasticity (GJR-GARCH) modelling. Findings In accordance with signalling theory and the efficient market hypothesis, the study found that receivers do react to positive signals from a credible insider signaller to obviate information asymmetry. In line with previous research, the study also finds that receivers react much stronger to negative signals. Practical implications Investors, financial managers and top executives responsible for their stock price need to focus on presidential signalling as these directly affect market volatility. In particular, investors and financial managers can predict stock price volatility based upon signals from the president. Originality/value This is the first research study that explores the correlation between presidential signalling and market volatility. This study is important for investors and financial managers.
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John O. Messo, Raude, and John Byaruhanga. "Earnings Announcement and the Performance of Security Prices of Companies Listed on the Nairobi Securities Exchange, Kenya." International Journal of Business and Management 14, no. 9 (August 26, 2019): 188. http://dx.doi.org/10.5539/ijbm.v14n9p188.
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Security price performance is a significant economic activity which measures the company’s wealth and plays a vital role in economic growth. Security price performance reflects investor perception to earn and grow returns in the future. However, this is not the case for the NSE, Kenya N20 share index, which for the past two to three years experienced declines in security prices prompting this study to investigate the effect of Earnings Announcements on the Performance of Security Prices of companies listed on the NSE, Kenya. The study applied the Dividend Signaling Theory, the Efficient Market Hypothesis, and the Market Expectation Theory. The study used the Event Study Methodology, administered a questionnaire and schedules to collect data from 25 listed companies, and used parametric statistical techniques - the ANOVA and Regression Analysis to analyze data and test the Hypotheses. The study found Earnings Announcements were insignificant at 5 percent significant level; thus, concluded that Earnings Announcements did not affect the Performance of Securities of companies listed on the NSE, Kenya. This study will guide the market activities and provide a better understanding of how to optimize returns. It will enable the policymakers to assess and evaluate the current status and, provide a platform for making reviews, designs, and formulate policies to regulate and control trading activities on the financial markets, contribute to knowledge and strengthen the foundation for further research. Future research should investigate the effects of other events on the performance of security prices of listed companies.
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Jeong, Bong-Keun, and Ying Lu. "The Impact of Radio Frequency Identification (RFID) Investment Announcements on the Market Value of the Firm." Journal of Theoretical and Applied Electronic Commerce Research 3, no. 1 (April 1, 2008): 41–54. http://dx.doi.org/10.3390/jtaer3010006.
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This paper examines the impact of RFID investment announcements on the market value of the firms and explores industry effects of the positive abnormal returns to firms making the announcements. Drawing upon the efficient market theory, market signaling hypothesis, and prior empirical studies, we employ event study methodology to analyze RFID investment announcements over a six-year period from 2001 to 2006. In this paper, we present preliminary results that demonstrate an overall positive abnormal return to RFID investment announcements over the three-day event window. In addition, industry differences in market returns to RFID investment announcements are observed with a greater return realized in the manufacturing sector and specifically in the information technology industry segment and for technology vendors’ investment initiatives. These preliminary findings provide useful implications for a better understanding of the benefits of RFID adoption and for making decisions in RFID investment and adoption to create value for the firms.
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Kustono, Alwan Sri. "Motive behind Earnings Management Practices: Case in Public Property and Real Estate Companies in Indonesia." AKRUAL: Jurnal Akuntansi 12, no. 1 (October 24, 2020): 49. http://dx.doi.org/10.26740/jaj.v12n1.p49-64.
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This study examines the antecedents and consequence variables of earnings management. This study is expected to explain the motive of earnings management practices by public property and real estate companies in Indonesia: opportunistic or efficient. The theory which is the basis for developing the hypotheses ise agency, positive accounting, and signaling theories simultaneously. This study is explanatory research which aims to explain the causal relationship between variables through hypothesis testing. Data of this research are financial statements of public companies in the property and real estate sector in Indonesia (2014-2018) with some criteria. There are 60 firm-years data used in the analysis. Hypothesis testing uses multiple linear regression two-stage. The first stage analysis is used to examine the effect of the antecedent earnings management variable. Regression second stage test the consequences of earnings management practices. The results show debt and independent commissioners affect earnings management. Management performs more dominant earnings management because of opportunistic interests than to maintain market value and the interests of its shareholders. The implication of this research is to provide a comprehensive discourse on the motives for earnings management behavior in Indonesia.
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James, Kevin R., and Marcela Valenzuela. "The Efficient IPO Market Hypothesis: Theory and Evidence." Journal of Financial and Quantitative Analysis 55, no. 7 (January 23, 2020): 2304–33. http://dx.doi.org/10.1017/s0022109019000784.
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We derive the optimal underwriting method and the quantitative initial public offering (IPO) pricing rule that this method implies in a market with informational frictions consisting of fully rational banks, issuers, and investors. In an efficient IPO market, an issuer’s expected initial return will be determined entirely by the combination of this pricing rule and issuer fundamentals. Applying this rule, we find that we can explain the quantitative magnitude of the principal aspects of the time-series and cross-sectional variation in IPO average initial returns. We conclude that the IPO market is efficient.
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GULKO, LES. "THE ENTROPIC MARKET HYPOTHESIS." International Journal of Theoretical and Applied Finance 02, no. 03 (July 1999): 293–329. http://dx.doi.org/10.1142/s0219024999000170.
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Information theory teaches that entropy is the fundamental limit for data compression, and electrical engineers routinely use entropy as a criterion for efficient storage and transmission of information. Since modern financial theory teaches that competitive market prices store and transmit information with some efficiency, should financial economists be concerned with entropy? This paper presents a market model in which entropy emerges endogenously as a condition for the operational efficiency of price discovery while entropy maximization emerges as a condition for the informational efficiency of market prices. The maximum-entropy formalism makes the efficient market hypothesis operational and testable. This formalism is used to establish that entropic markets admit no arbitrage and support both the Ross arbitrage pricing theory and the Black–Scholes stock option pricing model.
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Das, Amaresh. "Martingales, Efficient Market Hypothesis and Kolmogorov’s Complexity Theory." Information Management and Business Review 2, no. 6 (June 15, 2011): 252–58. http://dx.doi.org/10.22610/imbr.v2i6.905.
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Efficient market theory states that financial markets can process information instantly. Empirical observations have challenged the stricter form of the efficient market hypothesis (EMH). These empirical observations and theoretical considerations show that price changes are difficult to predict if one starts from the time series of price changes. This paper provides an explanation in terms of algorithmic complexity theory of Kolmogorov that makes a clearer connection between the efficient market hypothesis and the unpredictable character of stock returns.
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Pradana, Bayu Laksma. "ADAPTIVE MARKET? A NEW HYPOTHESIS?" Jurnal Bina Akuntansi 5, no. 1 (January 31, 2018): 150–63. http://dx.doi.org/10.52859/jba.v5i1.38.
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The efficient market hypothesis (EMH) has been challenged by behaviourists for decades. Is market predictable? and how rational human beings prone to make flaws in making decisions are two general questions that still debatable until nowadays. A long argument between Rationalists and Behaviorists. A new theory emerged to find a way out and became the “middle way”. It gave justifications that those previous theories have both their own strengths and also weakneses. Combining biology, neuro science, and evolution, The MIT Professor seemed to believe that finance and market today are more like evolutionary biology than physic. From time to time market adapts with environment, change in circumstances lead to change in behavior and methodology; this is what Andrew Lo called Adaptive Market. This literature study briefly explains the very start evidence about Efficient Market Hypothesis and how behaviour finance becomes the opponent of EMH. How adaptive market expands the horizon of interdiciplinary studies also will be presented in thorough manner. In conclusion, the new theory gives many proves that market is adaptive. However in contrast with behavior finance, adaptive market has more comprehensive reasons explaining the financial and economic environment that has been changed recently.
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Cohen, Lloyd R. "Why Tender Offers? The Efficient Market Hypothesis, the Supply of Stock, and Signaling." Journal of Legal Studies 19, no. 1 (January 1990): 113–43. http://dx.doi.org/10.1086/467844.
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Jovanovic, Franck, Stelios Andreadakis, and Christophe Schinckus. "Efficient market hypothesis and fraud on the market theory a new perspective for class actions." Research in International Business and Finance 38 (September 2016): 177–90. http://dx.doi.org/10.1016/j.ribaf.2016.04.003.
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Mphoeng, Mphoeng. "Testing for Weak-Form Market Efficiency in the Botswana Stock Market." Archives of Business Research 7, no. 9 (September 26, 2019): 134–40. http://dx.doi.org/10.14738/abr.79.6640.
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The theory of the Efficient Market Hypothesis (EMH) has been debated extensively. In this study the runs test was employed on the Botswana Stock Exchange daily Domestic Companies and Foreign Companies indices to test whether the Botswana stock market follows the random walk process and subsequently determine weak-form market efficiency. The results of the runs test showed that the indices do not follow the random walk process. As a result the Botswana stock market is determined to be weak-form market inefficient and rejects the efficient market hypothesis accordingly.
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Abubakar, Mika’ilu. "A Survey of Literature on Theory and Empirics of Efficient Market Hypothesis." Asian Journal of Economics, Business and Accounting 3, no. 3 (January 10, 2017): 1–8. http://dx.doi.org/10.9734/ajeba/2017/34688.
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Amyulianthy, Rafrini, and Asriyal Asriyal. "Pengujian Empiris Efficient Market Hypothesis (EMH) Dan Capital Assets Pricing Model (CAPM)." Liquidity 2, no. 1 (July 2, 2018): 21–33. http://dx.doi.org/10.32546/lq.v2i1.126.
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As indicated, Efficient Market Hypothesis theory played an important role in evolution of accounting research. The conflict between the Efficient Market Hypothesis and hypotheses underlying many accounting prescriptions led to the introduction and popularization of positive theory and methodology in the accounting literature. This paper is to provide a clearer understanding of the factors anomalies encountered by experts during a test of the reliability Efficient Market Hypothesis and Capital Asset Pricing Model (CAPM) theories which proposed by Fama in 1970.
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Hodnett, Kathleen, and Heng-Hsing Hsieh. "Capital Market Theories: Market Efficiency Versus Investor Prospects." International Business & Economics Research Journal (IBER) 11, no. 8 (August 1, 2012): 849. http://dx.doi.org/10.19030/iber.v11i8.7163.
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This paper reviews the development of capital market theories based on the assumption of capital market efficiency, which includes the efficient market hypothesis (EMH), modern portfolio theory (MPT), the capital asset pricing model (CAPM), the implications of MPT in asset allocation decisions, criticisms regarding the market portfolio and the development of the arbitrage pricing theory (APT). An alternative school of thought proposes that investors are irrational and that their trading behaviors are driven by psychological biases such as greed and fear. Prospect theory and the role of behavioral finance that describe investment decisions in imperfect capital markets are presented to contrast the Utopian assumption of perfect market efficiency. The paper concludes with the argument of Hirshleifer (2001) that heuristics are shared by investors and asset prices may not reflect their long-term intrinsic values as indicated by efficient capital market theories.
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Hunter, John E., and T. Daniel Coggin. "Analyst judgment: The efficient market hypothesis versus a psychological theory of human judgment." Organizational Behavior and Human Decision Processes 42, no. 3 (December 1988): 284–302. http://dx.doi.org/10.1016/0749-5978(88)90002-7.
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Boutabba, Islem Ahmed. "Testing financial market efficiency." JOURNAL OF SOCIAL SCIENCE RESEARCH 3, no. 3 (April 30, 2014): 351–72. http://dx.doi.org/10.24297/jssr.v3i3.3264.
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Since the birth of the financial literature until the 1970s, the efficient market hypothesis has been regarded as a central hypothesis. In the mid-1970s, there were theoretical and empirical evidence stating that the EMH seems untouchable. However, recently there has been an emergence of arguments doubting the EMH. The EMH implicitly indicates that stock prices can follow a random walk. Currently, financial theory has shown that stock prices do not follow a random walk.In this regard, our empirical study rejected the hypothesis of a random walk for 27 indices out of 28 studied. We confirm that the studied indices time series do not follow a random walk, and therefore we reject the financial markets efficiency hypothesis in its weak form. This result corroborates those of Fama and French (1992.993), DeBondt and Thaler (1985), Lo and MacKinlay (1991), Jagadeesh and Titman (1993) and Shleifer and Vishny (1997). Therefore, financial markets efficiency hypothesis in its weak form is also rejected. This result is logical given the limited capacity of the classical theory in explaining abnormal returns such as bubbles, crashes and excess volatility
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Boutabba, Islem. "Testing financial market efficiency." JOURNAL OF SOCIAL SCIENCE RESEARCH 4, no. 2 (June 4, 2014): 548–63. http://dx.doi.org/10.24297/jssr.v4i2.3151.
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Since the birth of the financial literature until the 1970s, the efficient market hypothesis has been regarded as a central hypothesis. In the mid-1970s, there were theoretical and empirical evidence stating that the EMH seems untouchable. However, recently there has been an emergence of arguments doubting the EMH. The EMH implicitly indicates that stock prices can follow a random walk. Currently, financial theory has shown that stock prices do not follow a random walk. In this regard, our empirical study rejected the hypothesis of a random walk for 27 indices out of 28 studied. We confirm that the studied indices time series do not follow a random walk, and therefore we reject the financial markets efficiency hypothesis in its weak form. This result corroborates those of Fama and French (1992.993), DeBondt and Thaler (1985), Lo and MacKinlay (1991), Jagadeesh and Titman (1993) and Shleifer and Vishny (1997). Therefore, financial markets efficiency hypothesis in its weak form is also rejected. This result is logical given the limited capacity of the classical theory in explaining abnormal returns such as bubbles, crashes and excess volatility.
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Affleck-Graves, J. F., A. H. Money, and K. Miedema. "The horse racing industry and the efficient markets hypothesis." South African Journal of Business Management 18, no. 1 (March 31, 1987): 35–40. http://dx.doi.org/10.4102/sajbm.v18i1.995.
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Betting on the racetrack and investing in the stockmarket have many characteristics in common. These similarities are discussed in this paper and the applicability of efficient markets theory to the market for horse racing bets in South Africa is examined. Both the weak form and the strong form of the efficient market hypothesis are empirically tested. The results indicate support for both forms although some small deviations from the theory do exist. Most notable of these is that on average long-odds horses win less frequently than suggested by their quoted odds whilst short-odds horses win more frequently than implied by their odds. However, these weak form deviations are not sufficient to enable consistent profits to be made. The performances of ten experts with potential access to inside information are examined and the results indicate that on average they are not able to earn superior investment returns. In fact, all ten had negative returns over the period examined and only three of them did better than the naive strategy of backing the favourite.
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Dewi, Sucitra, Erlina ., and Endang Sulistya Rini. "The Effect of Efficient Market Hypothesis, Gambler's Fallacy, Familiarity Effect, Risk Perception, and Economic Factors on Investment Decisions (Studies on Capital Market Investors in Medan City)." Volume 5 - 2020, Issue 8 - August 5, no. 8 (August 21, 2020): 285–91. http://dx.doi.org/10.38124/ijisrt20aug202.
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This study aims to examine the effect of the efficient market hypothesis, gambler's fallacy, familiarity effect, risk perception, and economic factors on investment decisions. This research is quantitative research with a descriptive approach. The population in this study were all capital market investors in Medan City. Determination of the research sample carries out by using judgment sampling technique and Malhotra theory so that 270 samples obtain. Data analysis using multiple linear regression analysis. The results of the multiple linear regression analysis showed that the efficient market hypothesis, gambler's fallacy, familiarity effect, risk perception, and economic factors partially had a positive and significant impact on investment decision making. Other results, the efficient market hypothesis, gambler's fallacy, familiarity effect, risk perception, and economic factors simultaneously have a positive and significant impact on investment decision making.
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Nitin Tanted and Prashant Mistry. "An Empirical Study on Efficient Market Hypothesis with reference to FMCG Sector." GIS Business 15, no. 1 (January 11, 2020): 109–26. http://dx.doi.org/10.26643/gis.v15i1.17895.
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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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Castro, F. Henrique, and Claudia Yoshinaga. "Underreaction to open market share repurchases,." Revista Contabilidade & Finanças 30, no. 80 (August 2019): 172–85. http://dx.doi.org/10.1590/1808-057x201806230.
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ABSTRACT This article aims to investigate the long-term performance of a portfolio of firms that announced the repurchase of their own stocks in the Brazilian market from 2003 to 2014. Open market stock repurchase is a means to distribute cashflow to shareholders. Some of the reasons for a firm to buy back its own stocks are: to adjust its capital structure; to reduce excessive cash levels; as an alternative to dividends; and signaling to the market in order to reduce information asymmetry between the firm and its investors. If the signaling hypothesis is true, then forming a portfolio with shares that announce repurchases generates abnormal returns in the long run. Our results show that repurchase announcements in the open market signal stock underpricing, and abnormal returns can be earned using this strategy. Results are inconsistent with the semi-strong form of the efficient markets hypothesis, which states that one cannot earn abnormal returns with publicly available information. We obtained abnormal returns using the capital asset pricing model (CAPM) and Fama and French three-factor model. Additionally, we divided the sample in growth and value firms. We found that the average abnormal return for firms that announce repurchase programs ranges from 5.4% to 7.9% for up to a 3-year period after the announcement. For value companies (more likely to repurchase stocks due to undervaluation), abnormal returns can reach up to 11.5% per year.
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Ying, Qianwei, Tahir Yousaf, Qurat ul Ain, Yasmeen Akhtar, and Muhammad Shahid Rasheed. "Stock Investment and Excess Returns: A Critical Review in the Light of the Efficient Market Hypothesis." Journal of Risk and Financial Management 12, no. 2 (June 8, 2019): 97. http://dx.doi.org/10.3390/jrfm12020097.
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The expansion of investment strategies and capital markets is altering the significance and empirical rationality of the Efficient Market Hypothesis. The vitality of capital markets is essential for efficiency research. The authors explore here the development and contemporary status of the efficient market hypothesis by emphasizing anomaly/excess returns. Investors often fail to get excess returns; however, thus far, market anomalies have been witnessed and stock prices have diverged from their intrinsic value. This paper presents an analysis of anomaly returns in the presence of the theory of the efficient market. Moreover, the market efficiency progression is reviewed and its present status is explored. Finally, the authors provide enough evidence of a data snooping issue, which violates and challenges the existing proof and creates room for replication studies in modern finance.
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Puspitaningtyas, Zarah. "Empirical evidence of market reactions based on signaling theory in Indonesia stock exchange." Investment Management and Financial Innovations 16, no. 2 (April 19, 2019): 66–77. http://dx.doi.org/10.21511/imfi.16(2).2019.06.
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Signaling theory assumes that it is necessary to signal investors to how they perceive company’s prospects. One of them is dividend announcements. The announcement of dividends is predicted to be a signal for investors in the investment decision making process. This study aims to determine and analyze the effect of dividend announcements, both increases and decreases in dividends, on stock returns. This study is intended to find empirical evidence about market reactions based on signaling theory in Indonesia Stock Exchange on the period 2017. The analysis of this study uses the event study method and hypothesis testing carried out using different test paired sample t-test. The results of this study prove that the market reacts to the announcement of dividends. The market reaction is indicated by the value of abnormal returns, namely abnormal returns in the positive direction when the announcement of dividend increased and abnormal returns in the negative direction when the announcement of dividend decreased. The value of abnormal returns in a positive direction reflects the company’s performance in good condition, and vice versa. This result indicates that dividend announcements are a signal and contain information relevant to investors in the investment decision making process.
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Seungwoo Kim. "The Cold War Origins of ‘Scientific’ Investment Discourse: Efficient Market Hypothesis, Rational Choice Theory, and the Modern Portfolio Theory." SA-CHONG(sa) ll, no. 95 (September 2018): 97–130. http://dx.doi.org/10.16957/sa..95.201810.97.
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Inaishi, Ryota, Kaoru Toya, Fei Zhai, and Eisuke Kita. "Effect of Overconfident Investor Behavior to Stock Market." Journal of Advanced Computational Intelligence and Intelligent Informatics 14, no. 6 (September 20, 2010): 661–68. http://dx.doi.org/10.20965/jaciii.2010.p0661.
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Behavioral finance theory has been presented to explain the phenomena not explainable by conventional finance theory based on efficient market hypothesis from the investor psychology. We focused on overconfidence – an important psychological bias –, and analyzed the effect of overconfident investor behavior in stock market using multiagent simulation. We found that, based on the increase in overconfident market investors, market dealing increases and rising trends occur more often. An analysis of the relationship between overconfidence and rising trends shows that rising trends make investors even more overconfident.
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Basdekidou, Vasiliki A. "The Overnight Return Temporal Market Anomaly." International Journal of Economics and Finance 9, no. 3 (January 30, 2017): 1. http://dx.doi.org/10.5539/ijef.v9n3p1.
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The main goal of this paper is to introduce an innovative market anomaly relating to “time” during the overnight post-market session and therefore characterized as a temporal market anomaly. Anomalies in the markets appear from time to time and test the efficient market hypothesis. Many investors and traders believe that the markets follow the efficient market hypothesis. According to this theory the current price of a security (trading instrument) reflects all public and private information about that security (instrument). Changes in price are due to insider information, current news, or sudden events, which are impossible to predict. Hence, security’s price action follows the path of a random walk, the hypothesis and argument of which states that current price is not dependent on past price and is normally or abnormally distributed over time. In financial and economical literature, many studies have presented approaches about what the academics call “market anomalies” and according to literature the anomalies are classified in three categories: Fundamental, Technical, and Calendar-based anomalies. In this article another class of market anomalies is introduced, that simply could be referred to as “temporal” because of the timing functionality involved. Finally, I will discuss one of these “temporal” anomalies, called the overnight return temporal market anomaly. The presented research shows that momentum profit accumulates entirely overnight, while profit on all other strategies occurs entirely intraday. These findings strongly reject classical theories of intraday versus overnight returns.
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De Bondt, Werner. "Investor and market overreaction: a retrospective." Review of Behavioral Finance 12, no. 1 (March 9, 2020): 11–20. http://dx.doi.org/10.1108/rbf-12-2019-0175.
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PurposeAre the capital markets of leading industrialized nations rational and efficient? This powerful hypothesis was badly dented by the work of De Bondt and Thaler (1985) on stock market overreaction and by subsequent research on momentum and reversals in prices and earnings.Design/methodology/approachHuman psychology, at times predictably irrational, drives the markets. This paper investigates this issue.FindingsThe author reviews the origins of the idea of overreaction, how behavioral insights modify standard asset pricing theory and how they contribute to our understanding of the world of finance.Originality/valueThe paper reveals the origins of the idea of overreaction, how behavioral insights modify standard asset pricing theory and how they contribute to our understanding of the world of finance.
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H. Chowdhury, Reza, Min Maung, and Jenny Zhang. "Information content of dividends: a case of an emerging financial market." Studies in Economics and Finance 31, no. 3 (July 29, 2014): 272–90. http://dx.doi.org/10.1108/sef-04-2013-0046.
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Purpose – The purpose of this paper is to examine the signaling and free cash flow hypotheses of dividends in the context of an emerging financial market. Design/methodology/approach – The authors use fundamental financial information of Chinese companies listed in the Shenzhen and Shanghai stock exchanges. They examine the impact of cash dividend payments on future profitability of individual firms with and without controlling for non-linearity in their earnings to test the signaling hypothesis. They also determine the characteristics of dividend paying firms to examine the free cash flow hypothesis. Findings – It was found that while dividend increases by publicly listed Chinese firms are followed by increases in earnings in two subsequent years, such relationship does not exist in the case of dividend decreases. However, under the assumption of non-linearity of earnings, it was found that neither dividend increases nor dividend decreases convey any valuable information about future changes in earnings of Chinese firms. Further, it was found that firms with high cash holdings, large profitability and high managerial efficiency are likely to pay dividends. The authors therefore conclude that announcements of cash dividend payments do not signal future performance but indicate good governance practices of publicly traded firms in China. Originality/value – This evidence is critical for potential foreign investors in their portfolio investment decisions and for regulators in determining an efficient measure of corporate disclosure in China.
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Yulianti, Eka, and Dwi Jayanti. "PENGUJIAN EFISIENSI PASAR BENTUK LEMAH PADA PASAR MODAL INDONESIA PERIODE 2014-2017." GEMA : Jurnal Gentiaras Manajemen dan Akuntansi 11, no. 2 (July 17, 2019): 178–90. http://dx.doi.org/10.47768/gema.v11i2.169.
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Investigate the current consumption of assets for the benefit of the future. The investment canbe done by only one in the capital market which means that the investment is invested in the initialcapital assets. Profit or the same value is aimed at the investor's main interest in investing not releasedfrom risk money. Such risks are inevitably uncertain about information movement in the stock market.Relevant information available can be used as a basis for making decisions when to buy shares orretain holdings of shares. In addition, information can also be a basis for consideration when to releaseshares or not to buy shares at all. This information relates to Efficient Market Hypothesis (HPE) whichcontinues to research in financial markets. One of the forms of the Efficient Market (HPE) hypothesis isthat market efficiency is a weak form that is examined in this study. This market efficiency form isrelated to random walk theory which assumes that past data is not related to present value.
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Fan, Qintao. "Earnings Management and Ownership Retention for Initial Public Offering Firms: Theory and Evidence." Accounting Review 82, no. 1 (January 1, 2007): 27–64. http://dx.doi.org/10.2308/accr.2007.82.1.27.
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This paper investigates, both theoretically and empirically, how earnings management and ownership retention interact, and how these two jointly affect the equilibrium market valuation of IPO firms in the presence of information asymmetry. Analytically, this paper extends the univariate signaling framework of Leland and Pyle (1977) and derives an efficient signaling equilibrium in which both reported earnings and ownership retention are endogenously chosen to convey the IPO issuer's private information. It is shown that even though either ownership retention or reported earnings communicates the issuer's type to the market unambiguously, the issuer will strategically employ both signals to achieve separation from potential lower quality imitators at minimal cost. Comparative statics analysis shows that the trade-off between the two signals depends critically on the uncertainty over future earnings. The theoretical analysis generates several empirical implications regarding market efficiency, IPO pricing, and the strategic choice of earnings management. Through systematic econometric analysis, I confirm the major predictions of the model.
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Renigier-Biłozor, Małgorzata, and Radosław Wiśniewski. "The Effectiveness of Real Estate Market Versus Efficiency of Its Participants." European Spatial Research and Policy 19, no. 1 (July 26, 2012): 95–110. http://dx.doi.org/10.2478/v10105-012-0008-5.
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Real estate markets (REMs) may be classified as strong-form efficient, semi-strong-form efficient or weak-form efficient. Efficiency measures the level of development or goal attainment in a complex social and economic system, such as the real estate market. The efficiency of the real estate market is the individual participant's ability to achieve the set goals. The number of goals is equivalent to the number of participants. Every market participant has a set of specific efficiency benchmarks which can be identified and described. In line with the theory of rational expectations, every participant should make decisions in a rational manner by relying on all available information to make the optimal forecast. The effectiveness of the real estate market is a function of the efficiency of individual market participants.
This paper attempts to prove the following hypothesis: the effectiveness of a real estate market may be identified by analysing the effectiveness of its participants. The authors also discuss methods based on the rough set theory which can influence the efficiency and efficacy of market participants, and consequently, the effectiveness of the real estate market and its participants.
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BIANCHI, SERGIO, ALEXANDRE PANTANELLA, and AUGUSTO PIANESE. "EFFICIENT MARKETS AND BEHAVIORAL FINANCE: A COMPREHENSIVE MULTIFRACTIONAL MODEL." Advances in Complex Systems 18, no. 01n02 (February 2015): 1550001. http://dx.doi.org/10.1142/s0219525915500010.
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Real-world financial dynamics daily do challenge the credibility of the Efficient Market Hypothesis, the pillar of the whole martingale-based modern financial theory stating that at any time asset prices discount all past information. As a matter of fact, the empirical evidence accumulated so far indicates that current models cannot explain the complexity of financial market movements, to the extent that a strand of skeptical thought, the Behavioral Finance, has been booming. The question whether a model exists which is able to make consistent the two paradigms is a living matter that financial markets demand to address. The paper deals with a parsimonious stochastic model able to include as special cases both market efficiency and "psychological" phenomena such as the underreaction and the overreaction, peculiar features of the behavioral finance. The great readability of the model, its capability to agree the controversial results provided by literature on efficient markets and the simplicity of the financial intuition it offers are discussed.
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Ang, Wei Rong, and Olaf Weber. "The market efficiency of socially responsible investment in Korea." Journal of Global Responsibility 9, no. 1 (February 5, 2018): 96–110. http://dx.doi.org/10.1108/jgr-11-2016-0030.
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Purpose This paper aims to analyze the market efficiency of socially responsible investment in Korea. The authors used the daily price of the Dow Jones Sustainability Index Korea between January 2006 and December 2015. Design/methodology/approach To analyze the unpredictability of the returns, the authors conducted runs tests, such as the Dickey–Fuller test, the Philip–Perron test, the variance ratio test and autocorrelation tests. These tests investigate whether the future price of socially responsible investment in Korea is dependent on its previous price. If the relationship is dependent, this will violate the theory of weak form of efficient market hypothesis which explains that the past price movements and data do not affect stock prices. Therefore, investors cannot gain any abnormal return by extrapolating the historical data. Findings The results suggest that the weak form of the efficient market hypothesis is not valid for the Dow Jones Sustainability Index Korea. This implies that the future price of the index is correlated with past prices. Hence, the future movement of socially responsible investment in Korea can be predicted and enables socially responsible investors to gain abnormal returns. Originality/value This is the first study to investigate the market efficiency of socially responsible investment in Korea.
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Batista, Alexandre Ricardo de Aragão, Uxi Maia, and Alécio Romero. "Stock market under the 2016 Brazilian presidential impeachment: a test in the semi-strong form of the efficient market hypothesis,." Revista Contabilidade & Finanças 29, no. 78 (June 18, 2018): 405–17. http://dx.doi.org/10.1590/1808-057x201805560.
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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.
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McCarthy, Mary, Paul Solomon, and Paul Mihalek. "Financial Crisis During 2007 And 2008: Efficient Markets Or Human Behavior?" Journal of Applied Business Research (JABR) 28, no. 6 (October 25, 2012): 1275. http://dx.doi.org/10.19030/jabr.v28i6.7342.
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The recent U.S. financial crisis, the U.S. stock market crash of 1987, and other recent anomalies have seriously challenged Famas classic efficient capital markets hypothesis. These events have made it likely that future capital markets research will be enriched by the important role that human behavior plays in the success or failure of the financial markets. This paper examines the factors causing the recent crisis within the United States financial services sector, the degree to which it may be explained by efficient capital markets theory and the degree to which such behavioral finance concepts as noise, excessive volatility, fashion and fads, and irrational behavior compromise that theory.
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Ajekwe, Clement C. M., Adzor Ibiamke, and Habila Abel Haruna. "Testing the Random Walk Theory in the Nigerian Stock Market." IRA-International Journal of Management & Social Sciences (ISSN 2455-2267) 6, no. 3 (March 10, 2017): 500. http://dx.doi.org/10.21013/jmss.v6.n3.p15.
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<div><p><em>This study tests the random walk theory in the Nigerian stock market by analyzing whether stock returns follow a random walk distribution. </em><em>The study employs the daily returns of the Top 20 most performing stocks on the NSE for the period January 1<sup>st</sup> 2010 to December 31<sup>st</sup> 2014. Autocorrelation and runs test</em><em> were employed for hypothesis testing. </em><em>Based on our analysis, we found that the daily stock returns of the 20 most active stocks on the Nigerian stock market are randomly distributed indicating that Nigerian Stock market is informational efficient at the weak form level. </em><em>The implication of the finding is that no one can fool the market consistently for a long time by trading on the basis of past information such as historical stock prices. The study recommends that more efforts should be made to reposition the market to attract more investible funds from domestic and foreign investors.</em></p></div>
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Albaity, Mohamed, and Diana Syafiza Said. "Impact of Open-Market Share Repurchases on Long-Term Stock Returns." SAGE Open 6, no. 4 (October 2016): 215824401667019. http://dx.doi.org/10.1177/2158244016670199.
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After the Asian financial crisis in 1997, firms listed on Bursa Malaysia were allowed to repurchase their shares on the open market. The number of companies engaged in share buyback is increasing and has become a tool to stabilize price by signaling undervaluation of the share. However, studies on share buyback in Malaysia are limited to the price performance surrounding the buyback events. This study aims to fill this gap by examining long-run price performance after the actual share buyback event over a sampling period of 2 years from 2009 to 2010 for Malaysian firms listed on FTSE Bursa Malaysia. There is no evidence to conclude that there exist long-term abnormal returns using the calendar-time portfolio approach that support the inefficient market hypothesis. On the contrary, buy-and-hold method was found to be significant supporting that the Malaysian stock market is semi-strong efficient.
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Suharli, Michell. "METODOLOGI RISET BAGI PERKEMBANGAN TEORI AKUNTANSI." Media Riset Akuntansi, Auditing dan Informasi 7, no. 3 (December 24, 2007): 325. http://dx.doi.org/10.25105/mraai.v7i3.761.
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<p class="Style18"><strong><em>This paper explains development of accounting theory in the context accounting as a </em></strong><strong><em>science. As a science, theory should developed by empirical research. In first portion we try to explain about relationship between research and theory. We explore how accounting can be a science. It should involve discussion and research in positive accounting theory. Then </em></strong><strong><em>we descript classification of research, method, efficient market hypothesis and capital asset </em></strong><strong><em>pricing models as resull of empirical research, and relationshrP between research, theory and practice in accounting. In conclusion we can understand that research methodology has important rule in development of accounting theory</em></strong></p><p class="Style18"><strong><em>Key Words: research methodology! theorizing, science, efficient market hypothesis, capital </em></strong><strong><em>assets pricing model</em></strong></p>
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Setianto, Rahmat Heru, and Turkhan Ali Abdul Manap. "The Behavior of Indonesian Stock Market: Structural Breaks and Nonlinearity." Gadjah Mada International Journal of Business 13, no. 3 (September 12, 2011): 209. http://dx.doi.org/10.22146/gamaijb.5480.
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This study empirically examines the behaviour of Indonesian stock market under the efficient market hypothesis framework by emphasizing on the random walk behaviour and nonlinearity over the period of April 1983 - December 2010. In the first step, the standard linear unit root test, namely the augmented Dickey-Fuller (ADF) test, Phillip-Perron (PP) test and Kwiatkowski-Philllips-Schmidt-Shin (KPSS) test identify the random walk behaviour in the indices. In order to take account the possible breaks in the index series Zivot and Adrews (1992) one break and Lumsdaine and Papell (1997) two breaks unit root test are employed to observe whether the presence of breaks in the data series will prevent the stocks from randomly pricing or vice versa. In the third step, we employ Harvey et al. (2008) test to examine the presence of nonlinear behaviour in Indonesian stock indices. The evidence of nonlinear behaviour in the indices, motivate us to use nonlinear unit root test procedure recently developed by Kapetanios et al. (2003) and Kruse (2010). In general, the results from standard linear unit root test, Zivot and Adrews (ZA) test and Lumsdaine and Papell (LP) test provide evidence that Jakarta Composite Index characterized by a unit root. In addition, structural breaks identified by ZA and LP test are corresponded to the events of financial market liberalization and financial crisis. The nonlinear unit root test procedure fail to rejects the null hypothesis of unit root for all indices, suggesting that Jakarta Composite Index characterized by random walk process supporting the theory of efficient market hypothesis.
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Khilji, Nasir M. "The Behaviour of Stock Returns in an Emerging Market: A Case Study of Pakistan." Pakistan Development Review 32, no. 4II (December 1, 1993): 593–604. http://dx.doi.org/10.30541/v32i4iipp.593-604.
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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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Babar, Samreen Fahim, Syeda Faizaq Urooj, and Khalid Usman. "Does Herding Exist? Evidence from Pakistan’s Stock Exchange." Global Economics Review I, no. I (December 30, 2016): 13–23. http://dx.doi.org/10.31703/ger.2016(i-i).02.
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Herding transpires when an investor imitates the decision of other stockholders or shadow market consensus (Rizzi, 2008). The Chartered Financial Analyst Institute affirms “Herding Behavior Bias” as the principal presumption influencing the investor’s decision. (Kunte, S.2015). Herding behavior contradicts the validity of an Efficient Market Hypothesis (Famma and Franch, 1970). The investigation of herd behavior in the Pakistan stock market is indispensable as the inconsistent behavior of stockholders stems from the inefficient assets pricing and resource misallocation. The study’s result affirms the existence of herd behavior in the stock exchange of Pakistan and contradicts rational assets pricing model and stock price efficiency theory.
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Chatterjee, Sutirtha, Jeffrey W. Merhout, Suprateek Sarker, and Allen S. Lee. "An examination of the electronic market hypothesis in the US home mortgage industry." Information Technology & People 26, no. 1 (March 15, 2013): 4–27. http://dx.doi.org/10.1108/09593841311307114.
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PurposeThe purpose of this paper is to longitudinally test the propositions of the Electronic Market Hypothesis (EMH) within the context of the US home mortgage industry.Design/methodology/approachThe paper uses a deductive, positivist case study, through a systematic examination of “texts” in the trade press over three time periods: 1995‐1999, 2000‐2002, and 2003‐2007.FindingsEMH propositions, while generally not found to be valid in the early years, were more consistent with evidence in the home mortgage industry in the later period.Research limitations/implicationsThrows fresh light on the debate between the appropriateness and the inappropriateness of the EMH as a core theory explaining the influence of Information Technology on market and industry structures.Practical implicationsDesigning of corporate strategies to foster efficient market mechanisms.Originality/valueUsing a relatively uncommon (analysis of primary data from trade press articles) qualitative research methodology which could serve as a guideline for future research. This approach offers opportunities to use various trade press sources to perform studies on the effects of IT on people, such as analyzing how IT departments are adapting their governance practices as workers increasingly use personal computing devices to access organizational assets (e.g., networks, applications, and data).
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HASAN, MOHAMMAD S. "ON THE VALIDITY OF THE RANDOM WALK HYPOTHESIS APPLIED TO THE DHAKA STOCK EXCHANGE." International Journal of Theoretical and Applied Finance 07, no. 08 (December 2004): 1069–85. http://dx.doi.org/10.1142/s0219024904002797.
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This paper employs a battery of statistical tests to examine the random walk variant of the weak-form efficient market hypothesis (EMH) using the daily data of the Dhaka Stock Exchange, the major equity market of Bangladesh, over a period of January 1990 to December 2000. The test results, however, are at variance across testing procedures and sub-periods. Results based on the random walk model and unit root tests show that the null hypothesis of randomness cannot be rejected and stock prices have a significant random walk or permanent component. Our analysis of autocorrelation functions indicates mean-reversion behavior of stock returns in most cases albeit with stock returns exhibiting some memory and predictable components during the bubble and post-speculation periods. The evaluation of the EGARCH-M model suggests significant asymmetric and leverage effects during the sub-period of speculative bubbles of 1996–1997. The BDS test indicates evidence of nonlinear long-term dependence during the pre-speculation period, while during the speculation and post-speculation periods the null hypothesis of nonlinear independence was not rejected. Overall, based on this evidence we do not categorically claim that the Dhaka Stock Exchange is weak-form efficient. However, these findings underscore the predictive significance and relevance of the random walk hypothesis as a generalized theory in explaining movements of share prices.
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Gilbert, Richard J. "The Role of Potential Competition in Industrial Organization." Journal of Economic Perspectives 3, no. 3 (August 1, 1989): 107–27. http://dx.doi.org/10.1257/jep.3.3.107.
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Potential competition is important as a mechanism to control market power. I assess the strengths and limitations of alternative theories of potential competition by examining the available theoretical, empirical and institutional knowledge. I consider four major schools of thought: the traditional model of limit pricing, dynamic limit pricing, the theory of contestable markets, and the market efficiency model. Traditional limit pricing models rest on the assumption that firms respond to entry but are able to earn persistent profits when the structural characteristics of markets make entry difficult. Dynamic limit pricing is similar, but emphasizes that markets can only be temporarily protected from entry. Contestability theory, in its pure form, asserts that potential competition is as effective as actual competition in controlling market performance. The efficient markets hypothesis, broadly interpreted, states that markets are workably competitive and that the market structure reflects differential efficiency, not strategic behavior.
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Qizam, Ibnu. "ISLAMIC CAPITAL MARKET INTEGRATION AND ASYMMETRIC INFORMATION: A STUDY IN THE FIVE ASEAN COUNTRIES FROM THE POST-GLOBAL FINANCIAL CRISIS." Business: Theory and Practice 22, no. 1 (April 9, 2021): 121–32. http://dx.doi.org/10.3846/btp.2021.12832.
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This study aims at examining the integration impact of the five ASEAN Islamic capital markets on asymmetric information for ASEAN Economic Community (AEC) development. Utilizing samples of market and financial panel data from 2009 to 2015 among the five ASEAN Islamic capital markets, and applying two-country portfolios of the Islamic capital markets among the five ASEAN countries to measure the different levels of Islamic capital market integration, this study suggests that the different levels of the Islamic capital market integration between Indonesia and Malaysia are found to result in asymmetric information negatively. The strongest Islamic capital market integration between Indonesia and Malaysia affect reduced asymmetric information more consistently than the other two-country portfolios, while the weakest level of integration between the Philippines and any other four Islamic capital markets that affects asymmetric information inconsistently is also supported. These results confirm an interplay between a modern portfolio theory, Efficient Market Hypothesis (EMH), contract theory, and general economic theory, and also provide new insights for stakeholders in investment decisions and strategies, cross-border regulation of economic resources, and other plentiful benefits.
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Tarek Al-Kayed, Lama, Sharifah Raihan Syed Mohd Zain, and Jarita Duasa. "The relationship between capital structure and performance of Islamic banks." Journal of Islamic Accounting and Business Research 5, no. 2 (September 2, 2014): 158–81. http://dx.doi.org/10.1108/jiabr-04-2012-0024.
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Purpose – This paper aims to examine the effect of capital structure on Islamic banks’ (IBs) performance to provide guidance to finance managers for raising capital funds. As newcomers to the markets, IBs are facing a trade-off. They can either use high capital ratios which increase the soundness and safety of the bank and lower the required return by investors, or depend on deposits and Islamic bonds which are considered cheaper sources of funds due to their tax rebate. An IB’s management must carefully decide the appropriate mix of debt and equity, i.e. capital structure, to maximize the value of the bank. Design/methodology/approach – Using a sample of 85 IBs covering banking systems in 19 countries, the study uses a two-stage least squares method to examine the performance determinants of IBs to control the reverse causality from performance to capital structure. Findings – After control of the macroeconomic environment, financial market structure and taxation, results indicate that IBs’ performance (profitability) responds positively to an increase in equity (capital ratio). The result is consistent with the signaling theory which predicts that banks expected to have better performance credibly transmit this information through higher capital. Optimal capital structure results of the IBs found a non-monotonic U-shaped relationship between the capital-asset ratio and profitability, supporting the efficiency risk and franchise value hypotheses. Research limitations/implications – Due to limitations for market data, the study uses book accounting ratios. Future research where market data are available could use performance measures, such as Tobin’s Q in performance determinants models. Practical implications – The non-monotonic relationship found between IBs’ return on equity and capital ratios suggests that equity issuances for IBs’ with low capital ratios (lower than the turning point of 37.41 per cent) are expensive and have a negative effect on their profitability. On the other hand, managers of well-capitalized IBs (banks with capital ratios beyond 37.41 per cent) are advised to rely on equity when faced by a decision to raise capital, as the capital ratio starts to affect their profitability positively. Originality/value – Islamic banking literature has been silent on IBs’ capital structure and its relevance; this study will try to fill in the existent gap.
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Boutabba, Islem Ahmed. "Checking presence of excess volatility in forecasting volatility of a set of market indexes through an empirical comparison of three GARCH models." JOURNAL OF SOCIAL SCIENCE RESEARCH 3, no. 3 (March 2, 2014): 385–94. http://dx.doi.org/10.24297/jssr.v3i3.3266.
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Classical financial theory is based on Efficient Market Hypothesis (EMH). Several researchers likeSchiller (1981) (1990), Le Roy and Porter (1980) have extensively argued for the invalidity of EMH. Volatility excess has been detected and highlighted by many researchers; however it has not been explained very well by EMH. For this reason, we conducted an empirical study to identify the variable characteristics of volatility by comparing three GARCH models (GARCH, E-GARCH and GRJ-GARCH) over five different market indexes to examine prediction of returns volatility.This comparison led us to detect several volatility characteristics like volatility clustering and leverage effect. This change in volatility regime is an irrefutable proof of the presence of volatility excess.Given the inability of classical financial theory in explaining volatility excess, researchers started to focus on behavioural finance (Barret and Saphister (1996)).
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Mohamed Yousop, Nur Liyana, Zuraidah Sipon, and Carolyn Soo Kum Yoke. "Lunar Effect: Analysis on Emerging Countries Stock Returns, Prior and During Financial Crisis." Journal of Emerging Economies and Islamic Research 2, no. 2 (May 31, 2014): 67. http://dx.doi.org/10.24191/jeeir.v2i2.9625.
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The random walk hypothesis is a theory which states that market prices are not influenced by prior price movements and therefore, prices in the stock market cannot simply be predicted. The stock market is considered efficient and follows the random walk theory when intelligent market participants lead the situation and reflect all available information based on the past or future events. The phenomena of calendar anomalies in stock markets are proven from the previous study, where behavior of returns tend to be high or low during specific calendar periods. Thus, for this study, we aims to investigate relationships between lunar effect and average stock returns for ten emerging countries for the period of January 2004 until December 2010. A lunar effect is a phenomenon where mean returns around the new moon is higher than mean returns around the full moon. Using non-parametric and basic multiple linear regression analysis, the result shows that returns on the full moon were slightly lower as compared to the returns on the new moon prior to the financial crisis and vice versa during the financial crisis.
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Boutabba, Islem. "Checking presence of excess volatility in forecasting volatility of a set of market indexes through an empirical comparison of three GARCH models." JOURNAL OF SOCIAL SCIENCE RESEARCH 4, no. 2 (June 4, 2014): 573–79. http://dx.doi.org/10.24297/jssr.v4i2.3152.
Full textAbstract:
Classical financial theory is based on Efficient Market Hypothesis (EMH). Several researchers like Schiller (1981) (1990), Le Roy and Porter (1980) have extensively argued for the invalidity of EMH.Volatility excess has been detected and highlighted by many researchers; however it has not been explained very well by EMH. For this reason, we conducted an empirical study to identify the variable characteristics of volatility by comparing three GARCH models (GARCH, E-GARCH and GRJ-GARCH) over five different market indexes to examine prediction of returns volatility. This comparison led us to detect several volatility characteristics like volatility clustering and leverage effect. This change in volatility regime is an irrefutable proof of the presence of volatility excess.Given the inability of classical financial theory in explaining volatility excess, researchers started to focus on behavioural finance (Barret and Saphister (1996)).