Journal articles: 'Efficient market theory'

1

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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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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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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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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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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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.

9

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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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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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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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)

13

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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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.

15

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.

16

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.

17

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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18

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.

19

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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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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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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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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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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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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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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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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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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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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Abstract:

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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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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Sun, Chao, and Yoonmin Kim. "Efficient Market Testing of the Chinese Stock Market During the COVID-19 Recession." East Asian Trade Association 4, no. 1 (June 30, 2022): 35–46. http://dx.doi.org/10.47510/jeat.2022.4.1.35.

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Purpose – The purpose of this paper is exploring whether Chinese stock market (SSEC) is effective during the COVID-19 recession. Recent asset market bubbles and bursts have generated interest in the efficiency of stock market behavior. Efficient market hypothesis (EMH) has been challenged by the COVID-19 recession. Design/Methodology/Approach – Based on Efficient market hypothesis, this research will present results of nonparametric tests employed in an econometric investigation of stock market efficiency in China during COVID-19 recession. To test this hypothesis, the Augmented Dickey-Fuller (ADF) test, Autocorrelation Function (ACF) test, Runs test, and Variance Ratio Test were used to assess the behavior of the SSEC. Findings – This paper studies the Chinese stock market’s (SSEC) behavior passed weak form efficient market tests for random walk. According to Variance Ratio Test, a certain group of SSEC investors could experience abnormal returns since there is a possibility that they could know something about a shock that is not already reflected in the stock's price. Research Implications – In the management of this paper, this study will provide help for stock market investors when investing or provide reference significance for the state to manage the stock market.

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Dickson, Peter R. "The Static and Dynamic Mechanics of Competition: A Comment on Hunt and Morgan's Comparative Advantage Theory." Journal of Marketing 60, no. 4 (October 1996): 102–6. http://dx.doi.org/10.1177/002224299606000409.

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The author provides constructive criticism of Hunt and Morgan's (1995) promotion of the dynamic disequilibrium paradigm and explains why their comparative advantage and market orientation theory is not dynamic enough. He discusses what creates market diversity and comparative advantage, why competitive markets are more efficient, how competitive markets fail, and how management of failed markets can fail. The author's goal is to demonstrate the explanatory power of the dynamic paradigm and encourage the use of it to focus on how firms can learn to improve their competitive processes.

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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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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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Ang, Andrew. "The Efficient Market Theory and Evidence: Implications for Active Investment Management." Foundations and Trends® in Finance 5, no. 3 (2010): 157–242. http://dx.doi.org/10.1561/0500000034.

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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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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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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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Woerle, Sebastian Matthias. "Wanna bet there will be war? A time-series analysis of prediction markets during the Libya conflict 2011." Journal of Prediction Markets 7, no. 3 (January 8, 2014): 1–28. http://dx.doi.org/10.5750/jpm.v7i3.790.

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This paper tests the explanatory power of an online Prediction market on the ousting of Muammar Gaddafi as Libya’s leader during the uprising in 2011. Based on the theory of efficient markets and collective intelligence, it employs a GARCH time-series analysis and an event study of Intrade data to test the impact of events on market performance and trading volume. The market distinguishes sensibly between relevant and irrelevant news for the outcome of the conflict and prices them in at a surprising speed. Some support for short-term anticipative trading and price performance is found. The analyzed market is found to be semi-strong efficient and works as an evaluative tool in international conflict.

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Stoughton, Neal M., Kit Pong Wong, and Long Yi. "Investment Efficiency and Product Market Competition." Journal of Financial and Quantitative Analysis 52, no. 6 (December 2017): 2611–42. http://dx.doi.org/10.1017/s0022109017000746.

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Does more competition lead to more information production and greater investment efficiency? This question is largely unexplored in the finance literature. This article provides both a model and a series of extensive empirical tests. The model features a 2-stage Bayesian game in differentiated products market competition. We find that competition causes firms to acquire less information and investments to become more inefficient relative to a first-best case with the same market structure. Empirically, the panel regression analysis provides strong support for the theory and shows that investment is more efficient in concentrated industries.

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Woo, Kai-Yin, Chulin Mai, Michael McAleer, and Wing-Keung Wong. "Review on Efficiency and Anomalies in Stock Markets." Economies 8, no. 1 (March 12, 2020): 20. http://dx.doi.org/10.3390/economies8010020.

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The efficient-market hypothesis (EMH) is one of the most important economic and financial hypotheses that have been tested over the past century. Due to many abnormal phenomena and conflicting evidence, otherwise known as anomalies against EMH, some academics have questioned whether EMH is valid, and pointed out that the financial literature has substantial evidence of anomalies, so that many theories have been developed to explain some anomalies. To address the issue, this paper reviews the theory and literature on market efficiency and market anomalies. We give a brief review on market efficiency and clearly define the concept of market efficiency and the EMH. We discuss some efforts that challenge the EMH. We review different market anomalies and different theories of Behavioral Finance that could be used to explain such market anomalies. This review is useful to academics for developing cutting-edge treatments of financial theory that EMH, anomalies, and Behavioral Finance underlie. The review is also beneficial to investors for making choices of investment products and strategies that suit their risk preferences and behavioral traits predicted from behavioral models. Finally, when EMH, anomalies and Behavioral Finance are used to explain the impacts of investor behavior on stock price movements, it is invaluable to policy makers, when reviewing their policies, to avoid excessive fluctuations in stock markets.

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Epplin, Francis M. "Market Failures and Land Grant Universities." Journal of Agricultural and Applied Economics 44, no. 3 (August 2012): 281–89. http://dx.doi.org/10.1017/s1074070800000365.

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One hundred and fifty years ago, the 1862 Morrill Land Grant Act was signed into law. Wise people at that time recognized that the private market for education failed to produce an efficient level of education decades before the economic theory was developed to explain that market failures reduce efficiency. The purpose of this paper is to review the history of selected events that resulted in the development of publicly funded U.S. educational institutions and to issue a challenge for our profession to do a better job of educating about the theoretical justification for using tax dollars to support university education and agricultural research and the efficiency enhancing consequences of that use.

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Officer, Lawrence H. "The Remarkable Efficiency of the Dollar-Sterling Gold Standard, 1890–1906." Journal of Economic History 49, no. 1 (March 1989): 1–41. http://dx.doi.org/10.1017/s0022050700007324.

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The article develops a model of gold-standard efficiency in the context of the theory of efficient asset markets. Efficiency is measured by the ratio of experienced disutility to the hypothetical loss under perfect gold arbitrage and neutral exchange-rate speculation. Dollar-sterling gold-point estimates for 1890 to 1906 are generated using the methodology of focusing on the dominant arbitrageurs, the prevailing exchange instrument, and the primary form of gold shipped. Gold- standard efficiency is remarkably high and only marginally below exchange- market efficiency from 1950 to 1966 under Bretton Woods.

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Shleifer, Andrei, and Robert W. Vishny. "The Politics of Market Socialism." Journal of Economic Perspectives 8, no. 2 (May 1, 1994): 165–76. http://dx.doi.org/10.1257/jep.8.2.165.

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The debate over market socialism has ignored the importance of the assumptions about the objectives of politicians in determining resource allocation. Theory and evidence suggest that totalitarian socialism does not lead to efficient resource allocation because dictators do not maximize social welfare. But democratic governments have political objectives different from social welfare as well. The authors argue that because these governments command greater resources (have more control rights) under socialism, democratic socialism (even if it could exist) is a less efficient system than democratic capitalism. Thus the political case against market socialism is even stronger than the economic case.

Journal articles on the topic 'Efficient market theory'

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