Financial Market Efficiency Research Articles

The Relationship Between Financial Development and the Composite Stock Price Index in Emerging Market Countries: A Panel Data Evidence

This study examines the influence of financial development variables on the Composite Stock Price Index (CSPI) in Emerging Market Countries. This study uses secondary data obtained from the International Monetary Fund and Yahoo Finance, with an annual data period of 2000–2020. Panel data regression analysis using the random effects model was performed to analyze data. The results showed that Financial Market Access Index (FMAI) and Financial Market Depth Index (FMDI) variables had a positive and significant relationship affecting CSPI, while Financial Market Efficiency Index (FMEI) had a negative and significant relationship to CSPI. The FMEI results negatively affecting CSPI indicate the need for improvements in financial market efficiency. Increased efficiency can help ensure that relevant and accurate information is available quickly and fairly to all parties, driving better investment decisions.

The Market Efficiency in the Significant Events/Global Events: A Review of Empirical Research

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.

Public data access and stock price synchronicity: Evidence from China

This paper investigates how public data facilitates financial market informativeness. The increasing information efficiency in digital economics has raised great attention in extant literature. Using the staggered difference-in-differences approach, we investigate how public data access enhanced by establishing governmental public data platforms affects stock price synchronicity, measured by the relative importance of firm-specific information to market-level information capitalized into stock prices. We find that public data access significantly reduces local firms' stock price synchronicity. The underlying mechanism is that public data access mitigates information-acquisition costs and facilitates the incorporation of firm-specific information into investors' decision-making rather than increased market attention or corporate disclosure quality. Public data platforms’ informational role is magnified when investors face higher informed trade risk or concern about poor corporate governance. Under the urgent need for value realization of data elements, we provide essential implications in promoting public data opening to improve financial market efficiency.

Do audit attributes impact earnings quality? Evidence from India

PurposeThe present study's goal is to analyze the impact of audit quality (AQ) on earnings quality (EQ) using different audit attributes. The study shows empirical evidence from India, considered an emerging market.Design/methodology/approachThe sample selected represents the 376 non-financial firms listed on the Bombay Stock Exchange (BSE). With a 20-year time frame, the authors used the absolute value of discretionary accruals (McNichols, 2002) (DA) as a proxy for EM, which is inversely related to EQ. The authors analyzed data using OLS, fixed effect (FE), 2SLS and Panel-IV estimators.FindingsThe authors found that most audit attributes positively affect EQ. In the Indian context, joint auditor (JA), auditor size (A_SIZE), auditor fee (A_FEE) and auditor tenure (A_TENURE) have a negative association with EM indicating high EQ. In contrast, auditor rotation (A_ROTATON) positively affects EM confirming low EQ.Research limitations/implicationsThe present study uses Big-4 and its member firms as a proxy of auditor size (A_SIZE); instead, other bases may be taken for it, like the dominant audit firms in a particular industry in sample data, etc. The authors have started audit tenure from the base year, i.e. 2001, which may ignore the association of auditor and auditee just before 2001.Practical implicationsThe study findings would enhance policymakers' willingness to prepare appropriate regulations regarding JAs and auditor rotation, which might improve financial market efficiency and reduce financial fraud among Indian corporates.Originality/valueTo the best of the authors' knowledge, this is the first study to incorporate “Joint Auditor” (JA) as a proxy for audit quality in the Indian context, which might significantly contribute to the literature.

Comparative Analysis of the Financial Market Performance Theories

This study compares two theories of financial market efficiency. In this regard, we have proposed parameters for assessing the state of the market, depending on the speed of absorption of this information received. Further, we have determined the specific boundaries of application of the presented theories. It is proposed to determine the degree of stability of a particular financial market using the maximal Lyapunov exponent.

Exploring the Existence of Efficiency in the Financial Markets

Since the market efficiency hypothesis theory was introduced by Fama in 1970, many investors and researchers argued about the efficiency form of the real financial market. In the real financial market, there are solid pieces of evidence that the price of securities could reflect related public information. However, as real human beings, the investors in the financial market are not always rational and act according to the assumptions stated in the market efficiency theory, which results in a reduction in the efficiency of the real financial market. In this paper, our group tends to use two different views (investors and companies) to prove that all of the market efficiency hypothesis theory assumptions are violated in the real financial market, and the current market efficiency is weak. From an investors view, our group tends to analyze the effect of psychological factors from investors on market efficiency. Furthermore, from the companies side, our group tends to use case analysis to provide solid evidence for the market efficiency analysis.

No more free lunch: The increasing popularity of machine learning and financial market efficiency

In this paper, we show that the increasing popularity of machine learning improves market efficiency. By analysing the performance of a set of popular machine learning-based investment strategies, we find that profits from these strategies experience significant declines since the wide adoption of machine learning techniques, especially for profits based on the more preferred method of neural networks. These declines mainly come from long legs. Using the ‘machine learning’ Google search index as a proxy for machine learning-based trading intensity, we find that returns from the neural networks-based long–short and long-only strategies are weaker following high levels of machine learning intensity, while no relation is found between machine learning intensity and the short-only neural networks-based strategy.

Новое в русле совершенствования финансового законодательства

Improving financial legislation, the Parliament of Russia adopted this year, in particular, Federal Laws No. 260-FZ and No. 226-FZ, which are aimed at increasing the level of efficiency and competitiveness of the national financial market.

Innovation, global competitiveness, and green total factor productivity: evidence from theBelt and Road Initiative region?

In the context of intensifying global competition, the Belt and Road Initiative is increasingly becoming an important choice for countries to achieve green development. Therefore, this study selected 116 countries worldwide as samples to empirically test the green development situation of Belt and Road Initiative countries from 2013 to 2020. Additionally, a simultaneous equation model was used to study the impact and mechanism of innovation capability on green total factor productivity (GTFP) in Belt and Road Initiative countries. The results show that he average annual growth in green total factor productivity was 2.9% between 2013 and 2020 in Belt and Road Initiative countries. Innovation is an effective means of promoting the improvement of GTFP, mainly relying on the single-track drive of green technical progress. Furthermore, global competitiveness has a significant moderating effect on this result, with market size, financial market, and labor market efficiency being the main regulating factors for efficiency enhancers, while infrastructure and macro-economic environment are the main regulating factors for basic requirements. In addition, developing countries rely more on innovation types that involve technology imports to promote the improvement of GTFP. Finally, in the analysis of regional heterogeneity, we found that the results of the four continents were more consistent with the regression results of the total sample, but the mechanisms of action between regions were different.

Sin stocks in European countries: The influence of wealth and familiarity bias on investment choices

This study examines the relationship between the wealth of European societies and their investment decisions in «sinful» industries, including tobacco, alcohol, and gambling. The study aims to challenge the widely held belief that wealthier countries are more socially responsible in their investment choices and to investigate the impact of familiarity bias on investment decisions in these industries. An experimental research design with panel data compares the returns from a portfolio of sin stocks from Northern Europe with a portfolio of sin stocks from Southern and Eastern Europe. The study utilises multiple models, including the CAPM single-factor, the Fama-French three-factor, and the Fama-French five-factor, to measure the risk-adjusted returns of sin stocks across various European countries. Findings reveal that sin stocks from wealthier countries tend to have higher risk-adjusted returns compared to those from less wealthy countries. Sin stocks have a significant relation with the market, but their volatility is consistently lower. Countries that drink more alcohol are more willing to invest in alcohol stocks than countries that drink less, as these stocks outperform the market during economic downturns. Sin stocks impact financial performance, investor behaviour, social responsibility, market efficiency, and regulations. The study uncovers the influence of familiarity bias, indicating that investors from countries more accustomed to «sinful» activities are less reluctant to invest in such industries than countries with lower familiarity. This finding highlights the importance of cultural and social factors in shaping investment decisions and challenges traditional concepts of market efficiency.

Does Financial Development Alleviate Poverty? Empirical Evidence from Indonesia

This study examines the contribution of financial development to poverty reduction in Indonesia using the autoregressive distributed lag (ARDL) bound testing approach to the cointegration framework. It also employs annual data of several financial development measures such as domestic credit, broad money, and financial development indexes from 1986 to 2018. Our findings suggest that financial development and poverty reduction have a cointegration relationship, regardless of the financial development indicators used. Furthermore, we find that domestic credit, broad money, financial institution depth, financial market depth, financial market access, and financial market efficiency reduced poverty. It suggests that financial development reduced poverty through its indirect channel, i.e., the economic growth effect.

Exploring the macro-market determinants of Chinese FDI in OBOR nations: considering the role of IFRS adoption

The study investigated how accounting quality, corporate governance, and financial market efficiency attract Chinese FDI (CFDI) in the context of IFRS adoption among forty-three BRI economies from 2007–2018. The generalized linear model estimates demonstrated that (i) IFRS adoption negatively affected CFDI; (ii) accounting information quality had an insignificant effect on CFDI; (iii) corporate governance and financial market efficiency had a significant positive role in attracting FDI. Further, the sample was divided into IFRS and non-IFRS BRI Countries. The results were highly robust in economies that practiced IFRS, whereas accounting information quality became significant and positive in economies with no-IFRS practices.

The Impact of Applying new Settlement System (T + 2) in the Saudi Stock Market and the Possibility of Applying Financial Derivative Tools

This study aims  at finding the impact of the applying the new settlement system (T + 2) in the Saudi financial market, and possibility of applying the trading of financial derivative tools, to achieve the goals of the study the researcher designed a questionnaire commensurate with the subject of the study and its goals, and the descriptive analytical method was used to describe the study variables and test the hypotheses through Using  the statistical program (SPSS) to analyze the data.  The study reached a set of results, the most important one is that  application of the new settlement mechanism (T + 2) under consideration led to an increase in the efficiency  and revitalization of the Saudi financial market, which helped launch the trading index for financial derivatives, especially futures and options contracts, which will depend on the MSCI. Tadawul index 30) and MT30. The study also found that short selling carries two main advantages for the investor are "the opportunity to speculate, in addition to hedging the positions of purchase and risk management, and that the description of short selling that is forbidden differs from the description of short selling announced by the financial market" Tadawul ",  the study recommended to fulfill With the requirements of joining the international indicators in order for the Saudi financial market to be able to move from an emerging market to an advanced one.

National team intervention and price efficiency differentiation under the impact of COVID-19

ABSTRACT This paper examines how the ‘national team’, a direct government investment policy, influences the price efficiency of listed companies in the Shanghai Stock Index (SSE). We find that stocks directly invested in by the national team show greater price efficiency than stocks without direct bailout. We also analyse the impact of the COVID-19 pandemic on this price efficiency differentiation. The data period is divided into two sub-periods, and the results show that the price efficiency of stocks decreased after COVID-19. The reduction in price efficiency is more notable for stocks with direct government investment; the difference observed under national team investment in price efficiency is clearly reduced. Increased pessimistic investor expectations due to the pandemic could explain these changes. Our study provides novel evidence for the policy evaluation of national team intervention and a more detailed explanation about the decrease in financial market efficiency in the post-COVID-19 era.

Factor Analysis of the Efficiency of Russian Oil and Gas Companies

The purpose of the study is to develop theoretical and methodological foundations for the development of tools for assessing the level of financial and technical efficiency of oil and gas companies and identifying reserves for improving efficiency based on the influence of external and internal factors. The theoretical basis of the research consists of the authors' works devoted to the problems of assessing financial efficiency, technical efficiency, innovation, market and environmental efficiency of companies. Modeling was carried out on the basis of tools for building DEA models, logistic regression, methods of correlation and regression analysis using the functionality of the software product R. The data of 7 companies with the largest revenue in the oil and gas industry by the end of 2020 and macroeconomic indicators of the financial and economic market of the Russian Federation are also components of the information base of the study. The scientific novelty of the research lies in the development of theoretical provisions and methodological tools for evaluating the effectiveness of companies in effective identification by assessing financial and technical efficiency, developing models of the phenomenon and forecasting the effectiveness of companies in the oil and gas industry.

The Boundary of Open Data: Implications for Financial Market and Real Efficiency

The Boundary of Open Data: Implications for Financial Market and Real Efficiency

Are capital markets turning efficient? Need for financial market efficiency index

Government, regulators, exchanges, banks, and institutions collaborate to develop rules and devote significant time and resources to improving the financial system, with the ultimate goal of creating a more effective market. The statistics on turnover and earnings only show the market’s Quantitative’ growth. The figures do not demonstrate how the market has improved in terms of Quality and Market Efficiency. A robust market structure and long-term growth in any market are only possible when development is based on both qualitative (market efficiency) and quantitative factors (Turnovers and Earnings). Historically, studies and research have laid great emphasis on determining the market’s level of efficiency. However, market efficiency was always checked using staggered time frames and efficiency tests. The need of the hour is a transparent and simple-to-understand tool that can continuously measure market efficiency and has universal applicability. This study proposes a tool for measuring efficiency called the Financial Market Efficiency Index — FMEI. The Index would derive its parameters from the broad market Index of any country to assess and compare market efficiency. The index would not only measure the qualitative growth (Market Efficiency) of any market, but it would also compare the market efficiency of all countries around the world. This would allow stakeholders to make the best decisions for their respective markets.

Testing for Efficient Market Hypothesis on Malaysian’s Stock Market: Does Crisis Regime Matter?

In the context of the recent financial crisis, there has been growing questions about improving the efficiency of the stock market through liberalization. Although many researchers have studied the empirical effects of financial liberalization on stock market efficiency, consistent conclusions remain elusive. This paper aims to study the long and short-run relationship between financial liberalization and stock market efficiency before and after the global crisis strike in Malaysia. Specifically, Autoregressive Distributed Lag (ARDL) is the main econometric technique applied to explore this study. This study uses quarterly time series data over the period from 1998Q1 to 2020Q4. The findings revealed that financial openness and trade openness affect the stock market positively in the short and long term. In conclusion, these results indirectly support the efficient market hypothesis in Malaysia. Findings provide some policy implications in which the country should reinforce the prerequisites of openness to avoid the potential of initial crisis by equipping in an appropriate manner to minimize the short-term costs of liberalization to achieve long-term benefits.

Measuring informational efficiency of the European carbon market — A quantitative evaluation of higher order dependence

This paper introduces a new method for measuring nonlinear predictability in financial price changes: the so-called intermittency coefficient, a parameter of the multifractal random walk model by Bacry et al. (2001). As the intermittency coefficient can quantify the degree of nonlinear deviation from a random walk, we employ its estimates from financial data as a proxy for the loss of financial market efficiency. In addition, we propose a new statistical test of the random walk hypothesis. In an empirical application using data from the largest currently existing market for tradable pollution permits, the European Union Emissions Trading Scheme (EU ETS), we show that the degree of efficiency of this market remains largely unchanged over the period of observation 2008–2019. This suggests that the market has reached a mature state: informational efficiency in Phase III remains at a level comparable to Phase II. What is more, the EU ETS is found to be more efficient than the US stock market. This result, surprising as such, is largely attributable to the lower exposure to global economic shocks of the EU ETS.

Do climate technology, financialization, and sustainable finance impede environmental challenges? Evidence from G10 economies

Climate technologies and sustainable finance are imperative to ensure green growth agenda. Though there exists literature, however, little is known regarding the distinct influence of financial development and green finance in the framework of climate tech. This study examines the relevance of climate technologies, financialization (financial market efficiency and financial institutions' access), and sustainable finance in G10 countries. The initial findings confirm a long-run cointegrating relationship between model variables and highlight the issues of cross-sectional dependence and slope heterogeneity. Therefore, we employ the Cross-Sectional Augmented ARDL model and find that climate technologies, financial institutions' access, and green bonds (financial market efficiency) significantly decrease (increase) carbon emissions. Manifestly, the marginal contribution of climate technologies is higher towards emissions reduction, followed by green financing. Similar outcomes are observed in the short run; nevertheless, the coefficient magnitudes are relatively lower. The stability of the model is also confirmed through significant and negative error correction terms, implying a substantial convergence towards steady-state equilibrium in case of any deviation. These results are also validated by alternative estimators and offer valuable policy recommendations.