Journal articles: 'Efficient market theory'

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Jahnke, William W. "Requiem for Efficient Market Theory." Journal of Investing 3, no. 2 (May 31, 1994): 5–9. http://dx.doi.org/10.3905/joi.3.2.5.

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Zhu, Ziyan. "The Impact of Investor Expectation on the Financial Decision-Making." Highlights in Business, Economics and Management 34 (June 10, 2024): 102–7. http://dx.doi.org/10.54097/nf8m2446.

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This paper delves into a fundamental analysis of two significant standards in budgetary financial matters: efficient market hypothesis and behavioral finance. The efficient market hypothesis posits that financial markets efficiently process all available information, leading market participants to make rational decisions. This theory underscores the accuracy of market predictions and the efficiency of information processing. In contrast, behavioral finance challenges the efficient markets theory by revealing various cognitive biases and irrational behaviors that influence financial decisions, casting doubt on the accuracy of market predictions and the rationality of market behavior. Through a comprehensive investigation, this article aims to compare these two hypotheses and evaluate their impact on understanding financial markets and decision-making processes. By providing insights into how market efficiency and behavioral inconsistencies coexist and influence financial practice, this article aims to contribute to the ongoing discourse in monetary economics. By delving into these contrasting theories, this paper aims to provide valuable insights into how market efficiency and behavioral factors interact and shape financial outcomes.

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Mathivannan, S., and M. Selvakumar. "Test of Random Walk Theory in the National Stock Exchange." Asian Journal of Managerial Science 4, no. 2 (November 5, 2015): 21–25. http://dx.doi.org/10.51983/ajms-2015.4.2.1193.

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Capital market being a vital institution which facilitates economic development. It is true that so many parties are interested in knowing the efficiency of the capital market. The small and medium investors can be motivated to save and invest in the capital market only if their securities in the market are appropriately priced. The information content of events and its disseminations determine the efficiency of the capital market. That is, how quickly and correctly security prices reflect these information show the efficiency of the capital market.The term market efficiency is used to explain the relationship between information and share prices in the capital market. The three forms of market efficiency are weak form, semi – strong form and strong form. A market is considered as weak form if current prices fully reflect all information contained in historical prices. Thus, no investor can devise a trading rule based on past price patterns to earn abnormal return. A market is semi-strong efficient, if stock prices instantly reflect any new publicly available information. A market is said to be strong form efficient, if prices reflect all types of information whether available publicly or privately.It is usually believe that the markets in developing and less developed countries are not efficient in semi-strong form or strong form. In the developed countries, many research studies have been conducted to test the efficiency of the capital market. In India, very few studies have been conducted to test the efficiency of the capital market.The weak form of efficient market hypothesis also known as Random Walk Hypothesis states that at a given point of time, the size and direction of the next price change is at random.Hence, this paper has made an attempt to analyse whether prices in National Stock Exchange follow a random walk process as required by market efficiency.

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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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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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Zhou, Yijia. "Market Efficiency in the UK Emerging Financial Markets." Advances in Economics, Management and Political Sciences 19, no. 1 (September 13, 2023): 366–71. http://dx.doi.org/10.54254/2754-1169/19/20230161.

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The UK financial market system is huge, more clearly divided and more functional. Under the impact of the world financial innovation trend and the increasing competition in the international financial market, the UK financial market has made quite bold financial innovations. The internationalization trend of the UK's emerging financial market, capital market and London foreign exchange market are all strengthening. The efficiency of financial markets has a significant impact on the effective functioning of financial markets and thus on the efficiency of real economic operations. Market efficiency is influenced by a variety of factors. This paper examines market efficiency in detail from the perspectives of resource allocation theory, incomplete information theory, institutional economics theory and behavioral economics theory, and concludes that market efficiency is the result of a combination of factors such as resource allocation, and information, economic behavior. According to the efficient market hypothesis, investment decisions are largely determined by market efficiency. However, even the most developed financial markets in the world today are hardly guaranteed to conform to the perfect competition hypothesis. In summary, the study of market efficiency issues has far-reaching practical implications for the UK emerging financial markets in the transition period.

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Huang, Jingyi. "The Market Efficiency in the Significant Events/Global Events: A Review of Empirical Research." Advances in Economics, Management and Political Sciences 51, no. 1 (December 1, 2023): 6–11. http://dx.doi.org/10.54254/2754-1169/51/20230600.

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The efficient market hypothesis is a significant theory widely applied in modern economic and financial research about the impact of sudden global emergencies on various markets. Investigating the influence of the Efficient Market Hypothesis on public contingencies can augment the understanding of market behavior and investors decision-making processes. This could enable anticipating market trends and risks, facilitating prudent investment activities. This study examines the empirical research through the methodology chosen, application, and comparison of conclusions to summarize the effects of the crisis on financial market efficiency within a theoretical analysis framework. This study explores the different methodologies and results of research that test market efficiency in response to events impacting economic performance. As market theory evolves, increasingly refined models are being used, leading to more precise measurements of event effects on markets and better forecasting of market impact for effective decision-making.

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Emad Azhar Ali, Syed, Fong-Woon Lai, and Muhammad Kashif Shad. "Investors’ risk perception in the context of efficient market hypothesis: A conceptual framework for malaysian and indonesian stock exchange." SHS Web of Conferences 124 (2021): 03002. http://dx.doi.org/10.1051/shsconf/202112403002.

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The advocates of the Efficient Market Hypothesis (EMH) theory postulates that share prices depict all the available information concerning its intrinsic worth. EMH espouses the Random Walk Theory i.e. future stock returns cannot be predicted based on past movement patterns. Contrary to that, there are believers of the Adaptive Market Hypothesis (AMH) who have questioned the adaptability of EMH and argues that market efficiency and investor’s risk perception varies across time, thus, stock returns can be predicted through active portfolio management. Various Studies have argued on market efficiency debate for developed markets, however, limited studies have examined the same for emerging markets such as Malaysia and Indonesia, which are most volatile among ASEAN-5 indices. Therefore, the primary objective of this study is to conceptualize the manifestation of efficient market hypothesis and investors’ risk perception in volatile markets of Malaysia (Kuala Lumpur Composite Index) and Indonesia (Jakarta Composite Index) by testing the 10 years (2010-2019) of daily, weekly and monthly data for the return predictability. The findings of this study will provide insight into stock market behavior to help investors to better strategize their portfolio investment positioning to reap the most efficient risk-based return.

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Das, Amaresh. "Martingales, Efficient Market Hypothesis and Kolmogorovâ€™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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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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Schulz, Rodney. "Guest Editorial: Oil and Efficient-Market Theory." Journal of Petroleum Technology 59, no. 03 (March 1, 2007): 20–22. http://dx.doi.org/10.2118/0307-0020-jpt.

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Lee, Dwight R., and James A. Verbrugge. "The Efficient Market Theory Thrives on Criticism." Journal of Applied Corporate Finance 9, no. 1 (March 1996): 35–41. http://dx.doi.org/10.1111/j.1745-6622.1996.tb00099.x.

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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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Lin, Xie. "The Limitations of the Efficient Market Hypothesis." Highlights in Business, Economics and Management 20 (November 30, 2023): 37–41. http://dx.doi.org/10.54097/hbem.v20i.12311.

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The Efficient Market Hypothesis (EMH) has long been a fundamental theory in finance, asserting that financial markets are efficient and that asset prices reflect all available information. However, empirical evidence suggests limitations in three critical aspects. Firstly, momentum and reversal phenomena challenge the EMH, indicating the existence of persistent price trends and patterns that deviate from immediate information incorporation. Secondly, the presence of inside information and insider trading undermines the assumption of equal access to information, revealing information asymmetry and compromising market efficiency. Lastly, the influence of financial institutions, with their market power and associated complexities, introduces further challenges to the EMH. Agency issues, herding behavior, and short-termism among financial institutions can compromise market efficiency. Acknowledging these limitations is crucial for market participants as it allows for a refined understanding of market dynamics and informs the development of more comprehensive theories that better capture the complexities of real-world financial markets.

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GULKO, LES. "THE ENTROPY THEORY OF STOCK OPTION PRICING." International Journal of Theoretical and Applied Finance 02, no. 03 (July 1999): 331–55. http://dx.doi.org/10.1142/s0219024999000182.

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An informationally efficient price keeps investors as a group in the state of maximum uncertainty about the next price change. The Entropy Pricing Theory (EPT) captures this intuition and suggests that, in informationally efficient markets, perfectly uncertain market beliefs must prevail. When the entropy functional is used to index the market uncertainty, then the entropy-maximizing market beliefs must prevail. The EPT resolves the ambiguity of asset valuation in incomplete markets, notably, the valuation of derivative securities. We use the EPT to derive a new stock option pricing model that is similar to Black–Scholes' with the lognormal distribution replaced by a gamma distribution. Unlike the Black–Scholes model, the gamma model does not restrict the dynamics of the stock price or the short-term interest rate. Option replication based on the gamma model accounts for random changes in the stock price, price volatility and interest rates.

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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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Kamada, Yuichiro, and Fuhito Kojima. "Efficient Matching under Distributional Constraints: Theory and Applications." American Economic Review 105, no. 1 (January 1, 2015): 67–99. http://dx.doi.org/10.1257/aer.20101552.

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Many real matching markets are subject to distributional constraints. These constraints often take the form of restrictions on the numbers of agents on one side of the market matched to certain subsets on the other side. Real-life examples include restrictions on regions in medical matching, academic master's programs in graduate admission, and state-financed seats for college admission. Motivated by these markets, we study design of matching mechanisms under distributional constraints. We show that existing matching mechanisms suffer from inefficiency and instability, and propose a mechanism that is better in terms of efficiency, stability, and incentives while respecting the distributional constraints. (JEL C70, D61, D63)

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Scholl, Maarten P., Anisoara Calinescu, and J. Doyne Farmer. "How market ecology explains market malfunction." Proceedings of the National Academy of Sciences 118, no. 26 (June 25, 2021): e2015574118. http://dx.doi.org/10.1073/pnas.2015574118.

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Standard approaches to the theory of financial markets are based on equilibrium and efficiency. Here we develop an alternative based on concepts and methods developed by biologists, in which the wealth invested in a financial strategy is like the abundance of a species. We study a toy model of a market consisting of value investors, trend followers, and noise traders. We show that the average returns of strategies are strongly density dependent; that is, they depend on the wealth invested in each strategy at any given time. In the absence of noise, the market would slowly evolve toward an efficient equilibrium, but the statistical uncertainty in profitability (which is calibrated to match real markets) makes this noisy and uncertain. Even in the long term, the market spends extended periods of time away from perfect efficiency. We show how core concepts from ecology, such as the community matrix and food webs, give insight into market behavior. For example, at the efficient equilibrium, all three strategies have a mutualistic relationship, meaning that an increase in the wealth of one increases the returns of the others. The wealth dynamics of the market ecosystem explain how market inefficiencies spontaneously occur and gives insight into the origins of excess price volatility and deviations of prices from fundamental values.

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Bell, Holly A. "Velocity of Information in Efficient Markets: A Theory of Market Value Change." Journal of Investing 21, no. 3 (August 31, 2012): 55–59. http://dx.doi.org/10.3905/joi.2012.21.3.055.

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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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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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Pan, Heping. "A BASIC THEORY OF INTELLIGENT FINANCE." New Mathematics and Natural Computation 07, no. 02 (May 2011): 197–227. http://dx.doi.org/10.1142/s1793005711001895.

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This paper presents a basic theory of intelligent finance as a new paradigm of financial investment. It is assumed that the financial market is always in a state of swing between efficient and inefficient modes on multiple levels of time scale; it is possible to go beyond the efficient market theory to study the dynamic evolving process of the market between equilibrium and far-from-equilibrium; there are robust dynamic patterns in this evolving process, which may be exploitable via intelligent trading systems. On the foundation of the four principles — comprehensive, predictive, dynamic and strategic, the basic theory takes the information sources into the loop as the starting points for all the market analysis, introducing the scale space of time into the pricing process analysis in order to detect and capture trends, cycles and seasonality on multiple intrinsic levels of time scale which are then used as the dynamic basis for constructing and managing portfolios. In stock markets, the theory exhibits itself in the form of an Intelligent Dynamic Portfolio Theory, which integrates predictive modeling of a bull-bear market cycle, sector rotation, and portfolio optimization with a reactive trend following trading strategy.

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Thaker, Keyur, and Abhani Jitendra K. "Efficient Market Theory: In Relation with Bonus Issue Announcement in Indian Market." Paradigm 12, no. 2 (July 2008): 62–72. http://dx.doi.org/10.1177/0971890720080207.

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Razzaq, Bilal, Sabra Noveen, Adeel Mustafa, and Rabia Najaf. "ARBITRAGE PRICING MODEL IN RELATION TO EFFICIENT MARKET HYPOTHESES." International Journal of Research -GRANTHAALAYAH 4, no. 7 (July 31, 2016): 137–49. http://dx.doi.org/10.29121/granthaalayah.v4.i7.2016.2605.

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The purpose of this thesis is to distinguish between efficient and inefficient markets and check the validity and efficiency of Arbitrage Pricing Theory in these markets (United States and Hong Kong). In order to distinguish between efficient and inefficient markets, Durbin Watson Autocorrelation tests were applied on 12 stock exchanges name EUROPE, HONG KONG, INDIA, TAIWAN, AMSTERDAM, MALAYSIA, UNITED STATES, CANADA, TOKYO, AUSTRALIA, AUSTRIA, and SWITZERLAND. Furthermore, the efficiency was further checked through comparison of the market and locally listed mutual funds. After the selection of Hong Kong and United States Stock Exchanges, 10 macroeconomic variables (Inflation, Short Term Interest Rate, Long Term Interest Rate, Exchange Rate, Money Supply, Gold Prices, Oil Prices, Industrial Production Index, Market Return and Unemployment Rate were tested upon so that the APT model could be constructed. Tests like Normality and Multi-co-linearity were performed. Principle Component Analysis was used to reduce the number of variables. After all the above mentioned tests 4 variables were chosen to represent the APT in both the Hong Kong and United States Stock Exchanges. Lastly OLS Regression was applied to study the effect of these macroeconomic variables on the stock prices. The results showed that Hong Kong Stock Exchange was the most efficient while United States Stock Exchange fell in the inefficient category. The efficiency of APT was proven through the analysis of the value of R2. This value proved that when similar model of APT is applied in two different stock exchanges, the results would be more efficient in an efficient market like Hong Kong. This is the first attempt at constructing an APT Model based on the economic conditions in one country and applying the same model in a highly efficient market; in order to relate the performance of APT with market efficiency.

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GULKO, LES. "THE ENTROPY THEORY OF BOND OPTION PRICING." International Journal of Theoretical and Applied Finance 05, no. 04 (June 2002): 355–83. http://dx.doi.org/10.1142/s021902490200147x.

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An informationally efficient price keeps investors as a group in the state of maximum uncertainty about the next price change. The Entropy Pricing Theory (EPT) captures this intuition and suggests that, in informationally efficient markets, perfectly uncertain market beliefs must prevail. When the entropy functional is used to index collective market uncertainty, then the entropy-maximizing consensus beliefs must prevail. The EPT resolves the ambiguity of arbitrage-free valuation in incomplete markets. The EPT produces a new bond option model that is similar to Black–Scholes' with the lognormal distribution replaced by a beta distribution. Unlike alternative models, the beta model is valid for arbitrary term structure dynamics and for arbitrary credit risk of the underlying bonds. Option replication and hedging under the beta model accounts for random changes in the underlying bond price, price volatility and short-term interest rates.

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Pîrvuţ, Valentin. "Leasing in the Romanian Theory and Practice." Scientific Bulletin 21, no. 2 (December 1, 2016): 109–14. http://dx.doi.org/10.1515/bsaft-2016-0044.

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Abstract From the perspective of national economy, leasing represents a means of reorientating investments by attracting several new external financial sources in economy and a solution for launching on the market the products that have a limited demand and a low level of purchasing. Leasing represents an important factor in developing and making foreign trade more efficient through the possibility of entering on new markets and of opening new partnerships. Also, leasing attracts important financial resources since it has principal factors such as efficiency and safety.

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Li, Mulan, and Bin Wang. "Efficiency Analysis of Private Lending Market in China—Based on Hurst Index." Journal of Economics and Public Finance 8, no. 3 (July 8, 2022): p23. http://dx.doi.org/10.22158/jepf.v8n3p23.

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This paper explored the efficiency of the private lending market based on the fractal market theory. We used the rescaled range analysis method and the generalized Hurst exponent analysis method respectively, and we got that the private lending market had not yet reached the weakly efficient level and was anti-persistent. Then we further used the time-varying Hurst index to describe the dynamic changes in the efficiency of the private lending market and analyzed the Chinese stock market and foreign exchange market as a comparative analysis. We found that among the three markets, the efficiency of the private lending market was the lowest, and that there was a correlation between the efficiencies of the three markets, and its effectiveness was affected by the other two markets. Finally, based on the above analysis results, we put forward relevant suggestions on the development of the private lending market and provided a decision basis for investors in the private financing market.

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Keane, Simon M. "Paradox in the current crisis in efficient market theory." Journal of Portfolio Management 17, no. 2 (January 31, 1991): 30–34. http://dx.doi.org/10.3905/jpm.1991.409326.

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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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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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Polleit, Thorsten. "Modern Financial Market Theory – A Critique Based on the Logic of Human Action." Credit and Capital Markets – Kredit und Kapital: Volume 54, Issue 3 54, no. 3 (July 1, 2021): 447–67. http://dx.doi.org/10.3790/ccm.54.3.447.

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The modern financial market theory (MFMT) – based on the efficient market hypothesis, rational expectation theory, and modern portfolio theory – has become the standard approach in financial market economics. In this article, the MFMT will be critically reviewed using the logic of human action (or: praxeology) as an epistemological metatheory. It will be shown that the MFMT exhibits (praxeo-)logical deficiencies so that it cannot provide investors with well-founded decision-making support in real-world financial markets.

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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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Hadianto, Bram, Hendrik Hendrik, and Trishya Yuwana. "Does The Efficient Market Theory In The Weak Form Exist? Evidence From Indonesia." Jurnal Manajemen Indonesia 21, no. 2 (August 30, 2021): 183. http://dx.doi.org/10.25124/jmi.v21i2.2703.

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In the weak-form market efficiency theory, investors cannot predict the movement of all prices because of randomness. This circumstance happens because of a quick market reaction to new information. Conversely, suppose the market is not efficient in this shape; in that case, the investors can obtain an abnormal return. One of the reasons is the thin market, where many inactive stocks to be traded are available. Based on these issues, this research intends to examine this theory by employing runs testing on the daily returns of the Indonesia Composite Index (ICI) between January 2014 and December 2018 for each year and a whole. Once performing this test, this research demonstrates that the daily returns of the ICI are random for both situations. By denoting these facts, this research concludes that the capital market in Indonesia is efficient in a weak form and experiences a decrease in the thin level, reflected by the escalation in trading frequency, volume, and value, as well as the number of dynamic shares transacted. This research suggests that investors without sufficient information should utilize the service of the securities analysts to select the stocks they buy and sell to get the capital gain. Keywords – an efficient market in the weak form; market index return; runs test; thin market

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Maaz Javed and Saud Ahmad. "Role of Market Microstructure in Price Convergence: A Historic Meta-Review." PERENNIAL JOURNAL OF HISTORY 4, no. 1 (June 15, 2023): 82–95. http://dx.doi.org/10.52700/pjh.v4i1.142.

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This study aims to revisit the assumptions of economic theory that lead to the predictions of competitive equilibrium theory. Extensive work has already been done to answer how well these assumptions of microeconomic theory approximate the real-world market. In this context, two kinds of tools can be found in the literature that tries to answer this question. One is experimental economics (EE) where individuals are involved in a simplified market that mirrors the real-world markets. Human behavior is observed here under an alternating set of rules. The second tool is agent-based Modeling (ABM) which approximates the real-world markets with artificial agents where every agent possesses unique characteristics and the market comprises a diverse set of decision rules. In ABM, computer simulations imitate human behavior. Our results, however, state that with Zero Intelligence agents, the market is not even closer to the level of prediction of a theoretical competitive market. It also makes sense as random number generations should not lead the market to a level of efficiency higher than human agents and we cannot rule out the importance of rationality possessed by humans to bring more efficient results than ZI agents with no rationality.

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Maaz Javed and Saud Ahmad. "Role of Market Microstructure in Price Convergence: A Meta Analysis." PERENNIAL JOURNAL OF HISTORY 4, no. 1 (June 15, 2023): 82–95. http://dx.doi.org/10.52700/pjh.v4i1.144.

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This study aims to revisit the assumptions of economic theory that lead to the predictions of competitive equilibrium theory. Extensive work has already been done to answer how well these assumptions of microeconomic theory approximate the real-world market. In this context, two kinds of tools can be found in the literature that tries to answer this question. One is experimental economics (EE) where individuals are involved in a simplified market that mirrors the real-world markets. Human behavior is observed here under an alternating set of rules. The second tool is agent-based Modeling (ABM) which approximates the real-world markets with artificial agents where every agent possesses unique characteristics and the market comprises a diverse set of decision rules. In ABM, computer simulations imitate human behavior. Our results, however, state that with Zero Intelligence agents, the market is not even closer to the level of prediction of a theoretical competitive market. It also makes sense as random number generations should not lead the market to a level of efficiency higher than human agents and we cannot rule out the importance of rationality possessed by humans to bring more efficient results than ZI agents with no rationality.

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Berghorn, Wilhelm, Martin T. Schulz, and Sascha Otto. "Fractal Markets, Frontiers, and Factors." International Journal of Financial Research 12, no. 5 (June 10, 2021): 104. http://dx.doi.org/10.5430/ijfr.v12n5p104.

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We develop an alternative view to the modern finance theory that essentially suggests equilibria in efficient markets by taking a risk-based view of asset returns in stock markets. Based on a mathematical analysis of stock market data using multi-scale approaches, we will alternatively describe markets and factors as trend-based fractal processes and analyze well-known factor premiums, which leads to a return-based view of markets and a model of investors reacting to market environments. We conclude that markets could be viewed alternatively as fractal, non-stationary and, at most, asymptotically efficient.

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Wiśniewski, Radosław. "Efficient real estate market in Poland." Economics and Business Review 8, no. 1 (March 30, 2008): 55–79. http://dx.doi.org/10.18559/ebr.2008.1.544.

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The information efficiency of the real estate market is its ability to fully and immediately reflect all significant information in real estate prices. Efficiency is understood as the continuous reflection of respective information entering the system in real estate transaction prices, assuming this information is known, understood and unconditionally part of the decision-making process. Efficiency may be defined on two levels. The first one relates to the organization effectiveness of market system structures. The other one is related to the precision with which the price established on the real estate market reflects the actual value of the real estate and also to its ability to respond to the continuous inflow of information. The paper presents the theory of real estate market efficiency and verifies the hypothesis that the information efficiency of the real estate market in Poland is insufficient. (original abstract)

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Jasienė, Meilė, Arvydas Paškevičius, and Ieva Astrauskaitė. "BOND MARKET ANALYSIS: THE MAIN CONSTRAINTS IN THE RESEARCH OF 21ST CENTURY." Business, Management and Education 11, no. 2 (September 13, 2013): 224–40. http://dx.doi.org/10.3846/bme.2013.13.

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Searching for alternative source of bank financing, the view on capital market is taken. Recent research on capital market issues are arranged into four dimensions: theory and assumptions of efficient capital market, government’s role in it, other distortions and global interrelatedness. Main investigations are decentralized and visualized in “theoretical eight” model. Conclusions made on the diversity of interpretation of market efficiency, strongly expressed demand of information symmetry, soft actions of governments and the value of foreign performance in domestic markets. Furthermore, new approach to the classification of countries by their maturity in capital market is argued. The state of art of 2009-2012 of bond market and government debt is briefly described.

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Bolek, Monika, Agata Gniadkowska-Szymańska, and Katerina Lyroudi. "Covid-19 Pandemic and Day-of-the-week Anomaly in Omx Markets." Central European Economic Journal 9, no. 56 (January 1, 2022): 158–77. http://dx.doi.org/10.2478/ceej-2022-0010.

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Abstract This paper aims to discuss market efficiency due to the changes that appeared in this field after the COVID-19 outburst. The OMX exchange and its indices are taken into consideration because they represent markets not analysed in such a context before (a) Baltic: Estonia, Latvia and Lithuania; (b) Scandinavian: Denmark, Finland, Iceland, Norway and Sweden). Two periods before and during the COVID-19 pandemic are considered (January 2009 to January 2020 and February 2020 to February 2021), and the efficient market hypothesis is tested together with the day-of-a-week effect anomaly to recognize the differences in market efficiency that could appear under special conditions, such as a pandemic. The results indicated that the impact of this pandemic on market efficiency was positive in most of the OMX markets studied. The added value of the article is related to supplementing the theory of market efficiency and showing that in difficult times investors make more rational decisions.

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Woolley, Paul. "The Fallibility of the Efficient Market Theory: A New Paradigm." CFA Institute Conference Proceedings Quarterly 31, no. 2 (January 2014): 32–35. http://dx.doi.org/10.2469/cp.v31.n2.6.

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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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Zhang, Aibo. "An Empirical Study on The Calendar Effect of The Shanghai Index in China." Frontiers in Business, Economics and Management 9, no. 3 (June 28, 2023): 41–46. http://dx.doi.org/10.54097/fbem.v9i3.9486.

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The premise of traditional financial theory is efficient market theory and rational man hypothesis, while the market anomaly which can not be explained by traditional financial theory such as the calendar effect poses a great challenge to traditional financial theory. This paper uses the daily closing price data of the Shanghai Composite Index from December 19, 1999, to May 6, 2022, to investigate the calendar effect of the logarithmic return of the Shanghai Composite Index. The research results show that China's Shenzhen stock market is inefficient and has a negative Tuesday effect, which empirically proves the non-efficiency of China's stock market and the calendar effect in behavioral finance in China's stock market.

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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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Costello, M., D. West, and E. Grey. "Why Are Some Drugs in Short Supply?" Clinical Social Work and Health Intervention 15, no. 2 (March 28, 2024): 27–31. http://dx.doi.org/10.22359/cswhi_15_2_05.

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Traditional market theory says that efficient markets will supply the quantity of a good or service demanded at a satisfactory price that clears the market by assuring that the quality demanded is equal to the quantity supplied. Markets are sometimes inefficient when supply does not meet demand, as is the current case with certain cancer medications and other frequently ordered pharmaceuticals.

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Ćosić, Karlo, and Anita Čeh Časni. "The impact of cryptocurrency on the efficient frontier of emerging markets." Croatian Review of Economic, Business and Social Statistics 5, no. 2 (December 1, 2019): 64–75. http://dx.doi.org/10.2478/crebss-2019-0012.

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AbstractCryptocurrencies are a sweltering topic in modern times of investment strategies. Since the cryptocurrency market is classified as an emerging market, in this paper a portfolio of emerging markets is compiled from the indices of four European Union (EU) countries and one cryptocurrency. The aim of this paper is to investigate how the incorporation of the Bitcoin cryptocurrency into the portfolio affects the performance of the portfolios of these countries. Moreover, by drawing an efficient frontier, the paper identifies where Bitcoin stands relative to other indices in the portfolio. The countries whose indices were used in the analysis are: Croatia, Hungary, Romania and Poland during the period from July 13, 2018 to June 07, 2019. The method used for an efficient frontier formation is Markowitz’s Modern Portfolio Theory (MPT). By applying this theory, the minimum variance portfolio at the efficient frontier was created for the portfolio with and without the cryptocurrency. The empirical analysis indicates that Bitcoin improves the effectiveness of the portfolio in emerging markets of the selected EU countries, where the expected risks of a portfolio that includes the cryptocurrency are smaller and with higher returns than those of portfolios without Bitcoin. From the Markowitz’s theory point of view, the results of the empirical analysis also indicate that Bitcoin is on the efficient frontier. Since all instruments on the efficient frontier according to the modern portfolio theory are efficient, it can be concluded that investments in such instruments depend on investor’s risk aversion.

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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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Lindgren, Jussi. "Efficient Markets and Contingent Claims Valuation: An Information Theoretic Approach." Entropy 22, no. 11 (November 12, 2020): 1283. http://dx.doi.org/10.3390/e22111283.

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This research article shows how the pricing of derivative securities can be seen from the context of stochastic optimal control theory and information theory. The financial market is seen as an information processing system, which optimizes an information functional. An optimization problem is constructed, for which the linearized Hamilton–Jacobi–Bellman equation is the Black–Scholes pricing equation for financial derivatives. The model suggests that one can define a reasonable Hamiltonian for the financial market, which results in an optimal transport equation for the market drift. It is shown that in such a framework, which supports Black–Scholes pricing, the market drift obeys a backwards Burgers equation and that the market reaches a thermodynamical equilibrium, which minimizes the free energy and maximizes entropy.

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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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Lio, San, Joice Onyango, John Mirichii, Charles Mumanthi, Godwin Njeru, Joslyn Karimi, and Beatrice Warue. "Implication of efficient market hypothesis and arbitrage pricing theory in Chepkube market at the Kenya-Uganda border: A critique of literature review." University Journal 1, no. 2 (March 27, 2023): XX. http://dx.doi.org/10.59952/tuj.v1i2.165.

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Essentially, a market is the only point of convergence where actual exchanges betweenknowledgeable willing buyers on one hand and innovative creators of goods and services happen,and the end product is wealth, money and profit. The Efficient Market Hypothesis (EMH) isfounded on the premise that it is impossible to “beat the market” because market efficiencycauses existing asset prices to always incorporate and reflect all relevant information. In anefficient capital market, the security prices reflect all the available information, and excess returnis not possible by trading on the basis of new information. Markets are broadly broken into twocomponents: markets for goods and commodities as well as the money markets. The ArbitragePricing Theory is an asset pricing model that explains the cross-sectional variation in assetreturns or prices. This study analyses the applicability of both EMH and APT theories inChepkube; largely a goods and commodities market located at the Kenya-Uganda border in EastAfrica. Desk research methodology was used for this study. The study interrogates the existingliterature in eliciting the required information necessary for the research findings. The researchfindings suggest that only the weak and semi strong form of EMH exists at Chepkube while theAPT in its simplest form dominates the market trends as brokers seize, create, and controlpertinent information. The results provide customers, entrepreneurs, SMEs, researchers,financiers, government regulators and other interest groups with insights on efficient markets; aswell as opportunities for further empirical research.

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Journal articles on the topic 'Efficient market theory'

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