Financial Market Efficiency Research Articles

The Relationship Between Exchange Rate Volatility And Banking Sector Development: Time-Series Evidence From Emerging Economies

A limited number of recent studies have tested the relationship between some of the macroeconomic indicators and banking sector development. Among them, there are only few single developing-country studies, which tried to examine the direct impact of exchange rate volatility on the banking sector with mixed results. This paper examines the relationship between exchange rate volatility and banking sector development in 16 emerging economies over the period of 1980-2011. In this study we employ Pessaran, et al. 2001 bounds testing approach to cointegratoin and developed the short-run and long-run models. Our findings indicate that banking sector development responds significantly to exchange rate volatility in the majority of emerging economies in which 9 out of 16 confirm the short-run effect and 10 out of 16 exhibit the long-run effect. A strongly negative link between exchange rate uncertainty and liquid liabilities is confirmed. We find that the short-run effect effects last into the long-run effect only in 7 emerging economies. Furthermore, assessing the real exchange rate changes in long run confirmed that appreciation impede the banking sector development and eventually financial market development in majority of emerging economies. Meanwhile, our estimated results show the evidence of the significant impact of real income on banking sector development in almost all countries, implying that higher economic growth leads to higher banking activities and more investment. Given several country-specific results, based on their different economic and financial structure, we suggest that it is very crucial to implement appropriate monetary policy for emerging economies to stabilize their economic growth through the banking sector development upon unexpected exchange rate shocks. Under any kind of uncertainty in a country's financial system, chances for enjoying a well-developed banking sector in emerging economies would fade. All negative effects of exchange rate volatility will reduce efficiency of financial market and long-term growth of economy. In order to achieve these economies' long-run economic growth goals, we suggest that, the banking sector development and eventually financial market development should be considered a long-term objective for all emerging economies. In this paper, possible rationales for contrary short-run and long-run effects are also discussed.

Evidence for and Against the Validity of Efficient Market Hypothesis

Abstract The concept of an efficient financial market, in literature known as efficient market hypothesis (EMH), has had a long and difficult development path from the idea itself to its final conception, as one of the central paradigms in modern finance. It has been tested and critically reviewed for decades, and the two basic types of problems it has encountered are theoretical paradoxes and market anomalies. The aim of the paper is to examine the validity of EMH through various financial market efficiency tests and the results of previous research. The intention is to answer the question of whether, despite theoretical paradoxes and market anomalies, the notion of validity can be attributed to the concept of an efficient financial market. In this regard, the paper presents plenty of evidence for and against the validity of weak, semi-strong, and strong form of EMH, to conclude that, even after more than half a century of research, financial literature has not reached a consensus on the presence or absence of the validity of this hypothesis.

Market efficiency of Baltic stock markets: A fractional integration approach

We investigate financial market efficiency in the time series of four daily Baltic stock market indices, namely: Baltic Benchmark Gross Index (OMXBBGI), all share index of Tallin-Lithuanian (OMXT), all share index of Riga (OMXR) and all share index of Vilnius (OMXV), based on historical data from 1 January, 2000 to 22 January 2016. We use fractional integration methods to test the hypothesis of market efficiency. Realizing that long-memory estimation could be spurious in the presence of structural breaks, we identify bull and bear market phases from each of the time series. Applying the fractional integration approach, we find that the random walk hypothesis of market efficiency is generally rejected in the overall, and at two bull and one bear sub-samples of the four Baltic stock indices. The volatility at the bear markets of these stocks persists more than the volatility at the bull markets. Our results therefore provide evidence for weak form of market efficiency in the Baltic stock markets, with some exceptions. As a way of policy, the results are relevant to portfolio managers and policy makers in a number of ways.

The Impact of Governance on the Level of Disclosure and its Role in Attracting and Supporting Foreign Investment: Model of Qatar Stock Exchange

Through this research paper, we have considered the necessity to shed the light on role of the finance market efficiency in attracting foreign investments. That is through providing different concepts related to the investment and its types, as well as the financial market efficiency, the effect of the governance on disclosure, and its role in attracting foreign investment, all that will be represented through the Qatar market. The results found that the governance level plays an important role in attracting foreign capital through activating the level of disclosure, which is the cornerstone of success for the financial market as well as support success of any investor. The results showed that Qatar market in spite of it is being recently established, it achieved interesting results in attracting investments despite the existence of many obstacles, which block its expansion in the way it is required.

How to Measure Financial Market Efficiency? A Multifractality-Based Quantitative Approach with an Application to the European Carbon Market

This paper proposes a new measure for the evaluation of financial market efficiency, the so-called intermittency coefficient. This is a multifractality measure that can quantify the deviation from a random walk within the framework of the multifractal random walk model by Bacry et al. (2001b). While the random walk corresponds to the most genuine form of market efficiency, the larger the value of the intermittency coefficient is, the more inefficient a market would be. In contrast to commonly used methods based on Hurst exponents, the intermittency coefficient is a more powerful tool due to its well-established inference apparatus based on the generalised method of moments estimation technique. In an empirical application using data from the largest currently existing market for tradable pollution permits, the European Union Emissions Trading Scheme, we show that this market becomes more efficient over time. In addition, the degree of market efficiency is overall similar to that for the US stock market; for one sub-period, the market efficiency is found to be higher. While the first finding is anticipated, the second finding is noteworthy, as various observers expressed concerns with regard to the information efficiency of this newly established artificial market.

Challenges to Economic Upgrading of Iranian Economy

The main purpose of the paper is to summarize the challenges that the Iranian economy will face in the economic upgrading process and to provide possible solutions for the Iranian economy to move up in the global value chain. To achieve these goals, the data related to the global competitiveness index were studied to gain insight into the current situation of the Iranian economy. Findings reveal that despite the immense revenue source of Iran from exporting gas and oil, the Iranian economy is not competitive globally, and Iran is confronted with serious shortcomings in the globalization path. Data show that the performance of Iran in different factors of competitiveness (institutions, macroeconomic environment, labor market efficiency, goods market efficiency, financial market efficiency and innovation) is poor. Since Iran has many benefits from potential capabilities such as a young workforce and plentiful natural resources, it is recommended that Iranian government consider a functional and process upgrading strategy to improve the performance of Iran in global competitiveness. It is also important to focus on research and development processes for moving along the global value chain curve, in order to move towards the higher value creating activities. These internal development processes are very important for the country to maintain the upgrading process even under the unfavorable international political circumstances.

Non-Linear Relationship Between Financial Development, Economic Growth and Growth Volatility: Evidence from Nigeria

The relationship between economic growth, growth volatility and financial sector development continues to attract attention in the theoretical and empirical literature. Over time, some studies hypothesize that finance has a causal linear relationship with growth. Recently several other authors contradict this claim and argue that the relationship that exists between finance and growth is nonlinear. We investigate these claims for Nigeria for the period between 1970 and 2015, using semi-parametric econometric methods, Hansen sample splitting techniques and threshold estimator. We observed no evidence of ‘Too much finance’ as claimed by many researchers in recent times. We show that the relationship between financial development and economic growth is U-shaped. This is equally true for the relationship between financial development and growth volatility. We also discuss policy implications of our findings and recommend financial innovations and decentralization of stock exchanges to boost access to financial services, in addition, improved regulation to enhance financial market efficiency.

A multifractal detrended fluctuation analysis of financial market efficiency: Comparison using Dow Jones sector ETF indices

This study challenges the efficient market hypothesis, relying on the Dow Jones sector Exchange-Traded Fund (ETF) indices. For this purpose, we use the generalized Hurst exponent and multifractal detrended fluctuation analysis (MF-DFA) methods, using daily data over the timespan from 2000 to 2015. We compare the sector ETF indices in terms of market efficiency between short- and long-run horizons, small and large fluctuations, and before and after the global financial crisis (GFC). Our findings can be summarized as follows. First, there is clear evidence that the sector ETF markets are multifractal in nature. We also find a crossover in the multifractality of sector ETF market dynamics. Second, the utilities and consumer goods sector ETF markets are more efficient compared with the financial and telecommunications sector ETF markets, in terms of price prediction. Third, there are noteworthy discrepancies in terms of market efficiency, between the short- and long-term horizons. Fourth, the ETF market efficiency is considerably diminished after the global financial crisis.

Unconditional conservatism in Brazilian public companies and tax neutrality

ABSTRACT Law n. 11,638/2007 legitimized the International Financial Reporting Standards (IFRS) adoption process in Brazil and introduced an accounting system detached from tax purposes in the country. This law aims to reduce the influence of tax law on accounting standards and improve the quality of financial reporting, as IFRS are considered to be higher quality standards. International literature shows a reduction in earnings quality in environments where accounting and tax rules are strongly linked. Moreover, the influence of tax legislation on financial accounting is seen to encourage unconditional conservatism, a bias with no advantages for financial market efficiency. Thus, tax neutrality is expected to provide a more favorable institutional environment for quality financial reporting by detaching corporate accounting from tax accounting. In light of the above, this study aims to verify whether the advent of tax neutrality influences unconditional conservatism in Brazilian public companies. The methodology used involves panel data regressions. The sample consists of non-financial publicly-traded companies with information published in Economática® covering 2002 to 2014. The results show differences in the relationship between taxation and financial reporting between firms that are subject to different levels of monitoring in the Brazilian stock market. Evidence of unconditional conservatism is only found in companies that are subject to greater market monitoring. In this group, it is observed that taxation does not induce unconditional conservatism in reported earnings, which is expected in a tax neutrality context.

Deteriorating Complexity in Gold Returns: Evidence from the Compass Rose

The compass rose pattern in financial data may indicate the presence of a nonlinear, possibly chaotic, data generating mechanism. Analysis reveals that over four equivalent subperiods, from 1996 to 2015, the compass rose pattern in gold returns fades. This feature provides an opportunity to establish which of several data characteristics is consistent with the observed deterioration in the compass rose pattern. The observed monotonic change in pattern quality, the number of different price moves and the number of zero returns are all consistent with a changing trading environment that has led to improvements in financial market efficiency. We also conclude that it is unlikely that the compass rose pattern is the product of an underlying nonlinear structure, since there is evidence of nonlinearity in all time periods, even those where the compass rose pattern in not evident.

Гипотеза эффективности финансовых рынков или технический анализ: проверка с помощью искусственного интеллекта

Гипотеза эффективности финансовых рынков или технический анализ: проверка с помощью искусственного интеллекта

تقييم أداء محافظ القيمة في ظل كفاءة الأسواق المالية : دراسة اختبارية في سوق سنغافورة المالي خلال الفترة (2003 - 2016) = Evaluate the Performance of Value Portfolios under the Efficiency of Financial Markets : A Test Study in the Singapore Financial Market during for the Period (2003 - 2016)

محافظ القيمة | محافظ النمو | تقييم الأداء | نموذج تسعير الأصول المالية | نموذج ثلاثي العوامل فاما فرانش | كفاءة الأسواق المالية | Value Portfolios | Growth Portfolios | Evaluate the Performance | CAPM | Fama French Three Factors Models | Efficient Market Hypothesis

Identifying Structural Reform Gaps in Emerging Europe, the Caucasus, and Central Asia

Using data from the World Economic Forum’s Global Competitiveness Report as an example, this paper compares structural indicators for 25 countries in Emerging Europe, the Caucasus, and Central Asia with a generic country with similar charactersitics that is 40 percent richer as well as a country with the average EU income. This comparison suggests that improvements will be particularly crucial in the areas of institutions, financial market development, infrastructure, goods and labor market efficiency and areas related to innovation. For the generally more ambitious goal of reaching average EU income, the reform needs are correspondingly larger. The methodology focuses on (approximate) comparisons between countries and does not try to establish the link between structural reforms and growth. While we test for changes in empirical specifications, caveats relate to the quality of structural indicators, possible non-linearities, and reform complementarities. The approach can be applied to other indicators and at a more granular level.

Long Run Growth of Financial Technology

In most sectors, technological progress boosts efficiency. But financial technology and the associated data-intensive trading strategies have been blamed for market inefficiency. A key cause for concern is that better technology might induce traders to extract other's information from order flow data mining, rather than produce information themselves. Defenders of these new trading strategies argue that they provide liquidity by identifying uninformed orders and taking the other side of their trades. We adopt the lens of long-run growth to understand how improvements in financial technology shape information choices, trading strategies and market efficiency, as measured by price informativeness and market liquidity. We find that unbiased technological change can explain a market-wide shift in data collection and trading strategies. But our findings also cast doubt on common wisdom. First, although extracting information from order flow does crowd out production of fundamental information, this does not compromise price informativeness. Second, although taking the opposite side of uninformed trades is typically called providing liquidity, the rise of such trading strategies does not necessarily improve liquidity in the market as a whole.

КОЛИЧЕСТВЕННЫЙ АНАЛИЗ ДИНАМИКИ ИНСТИТУЦИОНАЛЬНЫХ УЧАСТНИКОВ ФИНАНСОВОГО РЫНКА

The efficiency of financial market functioning largely depends on their institutional members that are able to satisfy market demand in its provided services. These circumstances demonstrate the importance of studying the quantitative composition of financial market participants and determine the relevance of the topic chosen for the research. The paper defines the essence of the financial market, considers its basic functions. Based on the archival and contemporary statistical data, the authors performed the quantitative analysis of leading financial institutions, among which credit institutions, insurance companies, and private pension funds were selected. The paper illustrates the dynamics of quantitative composition of participants for the period from 2006 to 2016 and pays attention to the structure of assets of credit institutions by the periods of the research. It is identified that the significant changes in the composition of banking system participants were caused by the world financial crisis of 2008–2009 and by the significant changes taking place within banking system since 2015. The authors identified the causes of reducing the number of insurance companies in the market. The main cause is the strengthening of license requirements for carrying on the insurance activity in the market. As the main cause of reducing the number of occupational pension funds the current situation in the market of collective investing is determined. According to the results of the research, the authors concluded that general trend of changes taking place in the financial market, both in the reduction of membership and in financial aspects of carrying on the activities, is the result of regulatory measures of Central Bank for the improvement of the institutional participants efficiency and the functioning of financial market in general.

Ринок платіжних карток в Україні: перспективи та обмеження розвитку

Over the recent twenty years, due to the rapid development of information and communication technologies and their active involvement in the banking business, credit cards have spread at the highest rate among the global instruments of retail payment. The active proliferation of pay cards offers significant prospects for stimulating consumer demand and intensifying economic processes, but also has a number of significant risks. According to this, the article analyzes the prospects and risks of the quick payment cards spreading in Ukraine. The author assesses the current state and modern trends of the payment card market in Ukraine compared with EU countries, and generalizes the practice of state support of the development of special means of payment in EU countries. There are conclusions about potential benefits of further spread of card payments in Ukraine, the main of which are: reduction of the volume of cash in circulation, revival of economic processes and their increased transparency, increase in tax revenues and approaching of Ukrainian financial markets to the world level. These advantages significantly exceed the potential risks. To finish with, the author provides guidelines and recommendations on the measures and instruments of state support of the development of payment cards market in Ukraine to contribute in the solution of the problem of the growing share of cash payments and increase the efficiency of domestic financial market.

Financial Analystss Long-Term Growth Forecasts and Market Efficiency with Respect to Firmss Innovative Efficiency

This paper investigates the role of financial analysts’ long-term growth (LTG) forecasts in stock market efficiency with respect to information about firms’ innovative efficiency (IE). Hirshleifer, Hsu, and Li (2013) attribute evidence of market inefficiency with respect to IE information to investor limited attention constraints. We predict and find that innovatively efficient firms attract analyst publication of long-term growth (LTG) forecasts. Further evidence suggests that these forecasts proxy for analyst attention to long-term prospects, thus mitigating investor inattention and market underreaction to IE information. Our results also indicate that analysts publishing LTG forecasts bring more private information to bear on firms whose prospects depend on IE. Furthermore, we find that forecasted LTG rates increase with firms’ IE. Finally, analysts’ LTG forecasting experience and expertise in analyzing the implications of technological innovation further attenuate analyst and market inefficiency with respect to IE information. When attracted to research-intensive firms, analyst publication of LTG forecasts apparently corresponds to a long-term perspective that mitigates investor inattention and market underreaction to IE information.

Information Content of Annual Earnings Announcements: Evidence from Moroccan Stock Market

The objective of our work is to study the information content of accounting results of listed companies in the Casablanca Stock Exchange. Applying the methodology adopted by Beaver (1968), we analyze the market reaction, in terms of changes in prices and volumes around the announcement of annual earnings. Our study focuses on 75 companies listed on the Casablanca Stock Exchange for the period [2010 to 2015]. It accounts for the presence of an informational content for the accounting results around the announcement date. Thus, this confirms the hypothesis of financial market efficiency in its semi-strong form (Fama, 1970) and the results obtained in other financial markets (US, French, Chinese ...).

Financial Liberalization and Stock Market Efficiency: Causality Analysis of Emerging Markets

This paper studies the long- and short-run relationship between financial liberalization and stock market efficiency. It expands the extant body of knowledge by investigating Granger causality relationship applying mean group, common correlated effect mean group and common correlated effect pooled estimator to balanced panel data for 27 emerging markets over the period 1996–2011. We find evidence of financial liberalization Granger causes stock market efficiency, which is consistent with liberalization leads to efficiency hypothesis. Subsequently, our work makes a fresh contribution to the literature by focusing on informational efficiency of stock markets rather than financial development. Furthermore, we find that a negative long-term relationship between financial liberalization and stock return autocorrelation coexists with a positive short-term relationship between the two. The findings that financial liberalization, which has a deteriorated effect on stock market efficiency in the short-run, but positive impact in the long-run, allow us to draw an analogy similar to the J-curve hypothesis.

Are Stock Markets Efficient? (Price-Earnings Ratio Approach): Korean Stock Market Proxy

This study investigates the relationship between Price-Earnings ratio and return on stocks. The result is used to appraise the efficiency of the Korean stock market. Findings statistically opposed S. Basu (1977) results. He realized Price-Earnings ratio effect but I found no statistical evidence supporting Price-Earnings ratio. Using Fama and Macbeth (1973) methodology of portfolio formation, I found no statistical Price-Earnings ratio nor size effect. If a test of financial market efficiency depends on Price-Earnings ratio and size effect only, then Korean stock market is efficient. However, within this context, it was difficult to determine the extent to which the market is efficient. The bid-ask spread (measure of information asymmetry) Will be study next to figure out the degree of market efficiency.