Semi-strong Efficiency Research Articles

The Trilogy of the Chinese Apple Futures Market: Price Discovery, Risk-Hedging and Cointegration

The agricultural futures market plays an extremely important role in price discovery, hedging risks, integrating agricultural markets and promoting agricultural economic growth. China is the largest apple producer and consumer in the world. In 2017, Chinese apple futures were listed on the Zhengzhou Commodity Exchange (CZCE) as the first fruit futures contract globally. This paper aims to study the efficiency of the apple futures market by using the Wild Bootstrapping Variance Ratio model to estimate the price discovery function, the ARIMA-GARCH model to estimate the risk-hedging function, and the ARDL-ECM model to estimate the cointegration relationship of the futures and spot market. Experimental results firstly demonstrate that the apple futures market conforms to the weak-form efficiency, which indicates that it is efficient in price discovery. Secondly, the apple futures market is not of semi-strong efficiency because it generated abnormal profit margins amid China–US trade friction, climate disaster, and COVID-19; in terms of the degree of impact, the COVID-19 pandemic had the greatest impact, followed by the rainstorm disaster and trade friction. Thirdly, the results of this study indicate that the cointegration relationships exist between the futures market and the spot markets of the main producing areas. This paper is not only conducive to sustainable development of the global fresh or fruit futures market, but also has potential and practical importance for China in developing the agricultural futures market, strengthening market risk management and promoting market circulation.

Twitter and market efficiency in energy markets: Evidence using LDA clustered topic extraction

We use an extended sample of tweets relating to energy markets in order to examine and quantify the existence of market efficiency. The tweets are used as a proxy for publicly available information and we examine the degree to which this information determines market movements on the next trading day for nine energy market indices. We mine the topics of increasing and decreasing days using latent Dirichlet allocation and find that the topics of tweets in increasing and decreasing days differ. We validate our approach by feeding the extracted topics into three classifier machines and find that the classifiers provide forecasts on market movements with accuracy 57.83% (39.02%) in bull (bear) markets. Our findings support the presence of semi-strong efficiency, since we find evidence of price movements not reflecting public information, while the asymmetry of forecast accuracy over increasing and decreasing markets suggests a different rate of information propagation across market regimes. Our findings can provide useful input to valuation models linked to market efficiency.

Steel and aluminum industry reactions of import rate announcement: Event study analysis

The study aims to find out the investor reaction to the announcement of import tariffs changes for the steel and aluminum sector. The study used the event study method, through the calculation of abnormal returns and trading volume activities which has the 11 event periods (ARCH/GARCH). The sample is public listed steel and aluminum firms, consist of daily stock prices, trading volume, and price index. One-sample test result showed abnormal returns variable are significant in the period before the announcement event, whereas the significant results only occurred on the period three after the event. Meanwhile, for the trading volume activities, the significant result show differences during the entire period. It can be said that the steel and aluminum industries being affected by the tariff announcement. As for two-samples test showed that there is not significant differences before and after the announcement event displayed, on abnormal returns and trading volume activity variable. Therefore, there is a shock influenced the stock return and show reaction by the announcement. From the study, abnormal return quickly returns to normal state and proved that the market in semi-strong efficiency category.

A Comparative Analysis of Weak and Semi-Strong Form Efficiency of Nigerian and South African Foreign Exchange Market

Foreign exchange market is said to be efficient if all available information are reflected in its exchange rates. An efficient foreign exchange translates to absence of profitable and exploitable trends which means that it is impossible for market participants or private agents to outperform the market. This study investigated the weak and semi-strong form efficiency of Nigerian and South African foreign exchange market to determine the significance of past exchange rates in predicting the present rate which is the test of weak form efficiency and it examined the co-integration relationships between selected pairs of exchange rate to determine the semi-strong efficiency. The secondary data used in this study were sourced mainly from the Central Bank of Nigeria Statistical Bulletin, the South African Reserve Bank Bulletin and the oanda exchange rate websites. The data used were the inter-bank spot exchange rates of Naira and Rand to Swiss Franc, Euro, Pounds, Dollar and Yen for the period of January 2010 to December 2017. The Augmented Dickey Fuller (ADF) test and the Phillip Peron (PP) test were employed to determine the weak form efficiency while the Variance Decomposition, Granger Causality and Co-integration tests were used to determine the semi-strong form efficiency of both countries. The results of the study revealed that the Nigerian foreign exchange market is efficient in the weak and semi-strong form at 5% level of significance while the weak form efficiency of South African foreign exchange market revealed mixed results. The market is efficient in the weak form except for the case of Rand to Dollar and Rand to Yen which showed inefficiency. The market is equally efficient in semi-strong form. The study concluded that market participants cannot make exploitable profits by trading in both markets because all past and publicly available information are already incorporated in the prices of exchange rates. It was therefore recommended that the inter-bank market in both countries should be well monitored and managed by the regulatory authorities so as to promote the effective and efficient smooth functioning of the foreign exchange market as well as achieving a stable and realistic exchange rates.

Does learning by observing matter for M&As? International evidence from the insurance industry

ABSTRACT This paper examines the role of learning by observing in insurance mergers and acquisitions (M&As) by employing an international sample across 18 countries spanning the years 1990 to 2014. The empirical results support a view of semi-strong market efficiency: the long-run improvements in financial performance and risk profiles are significantly related to past M&As in the insurance industry. Moreover, we find evidence of more accurate stock market predictions of long-run financial performance and risk profiles if there are more recent insurance merger activities. This paper provides a new explanation for the controversy observed in the failure of insurance M&As to create value.

Eficiência informacional em anúncios de criação de joint-ventures no mercado acionário brasileiro

This study aimed to verify the presence of semi-strong efficiency in the Brazilian stock market when the creation of joint ventures was announced. The period analyzed in the study was from May 24, 2012 to May 24, 2017, with a sample of 12 announcements about the creation of new joint ventures, in which at least one of the shareholders was a publicly traded Brazilian company. Subsequently, the event study methodology was employed. Expected returns were estimated using the market model, and then abnormal returns (AR) and cumulative abnormal return (CAR) were calculated during the event window. Finally, statistical tests were performed for the average of the abnormal returns in order to verify if the values were significant. The results of the work showed a strong downward trend in the ARs throughout the event window, consequently the CAR was strongly negative, reaching a value of -4.17% at the end of the event window. This fact indicates that the creation of a joint venture was seen as negative by the market. Regarding the statistical significance of the results, it is noteworthy that, only in the two days prior to the announcement of the creation of the joint venture, the AR was significant, in the other days the market behaved efficiently, with the AR not being statistically different from zero. The result of this research is relevant to the decision of managers who evaluate the possibility of establishing a new joint venture, showing the impacts that this decision may have on their company's stocks.

Stock market reaction to inflation announcement in the Indian stock market: A sectoral analysis

This study investigates the reaction of stock returns to the inflation announcement using time series data from 2012 to 2018. To check the market efficiency or semi-strong efficiency of the Indian ...

Betting Market Efficiency in the Presence of Unfamiliar Shocks: The Case of Ghost Games During the COVID-19 Pandemic

Betting markets have been frequently used as a natural laboratory to test the efficient market hypothesis and to obtain insights especially for financial markets. We add to this literature in analyzing the velocity and accuracy in which market expectations adapt to an exogenous shock: the introduction of soccer ghost games during the COVID-19 pandemic. We find that betting odds do not properly reflect the effect of ghost games regarding changes in home advantage. Furthermore, we present evidence for a slow to non-existing adaption process with respect to new match results, indicating a lack of semi-strong efficiency. Based on these findings, we also identify very simple but highly profitable betting strategies which underline our rejection of the efficient market hypothesis.

Testing Semi-Strong Efficiency of Indian Stock Market – Evidence from Union Budget

Testing Semi-Strong Efficiency of Indian Stock Market – Evidence from Union Budget

Estudo de Eventos Sobre o Anúncio da Emissão de Debêntures

Este trabalho tem como objetivo analisar a hipótese de que as emissões de debêntures geram retornos anormais positivos nas ações das companhias emissoras. Para tanto, realiza-se um estudo de eventos, entre o período de janeiro de 2014 e junho de 2015, tendo como referência a data do anúncio do início da distribuição das debêntures. O estudo analisa 40 pregões anteriores e posteriores a esse evento. A amostra final é composta por 11 companhias brasileiras não financeiras. Como resultado, verifica-se que a maioria dos retornos anormais acumulados são positivos e estatisticamente diferentes de zero, confirmando a hipótese desse estudo. Tal fato aponta para sinais de eficiência semiforte do mercado..

Accrual management and expected stock returns in India

PurposeThe purpose of this paper is to examine whether the stock market in India is efficient in the semi-strong form.Design/methodology/approachThe study uses financial and stock market data of 1,135 listed Indian companies (non-financial) during 2003–2011 collected from Capital IQ to estimate discretionary accruals (DA) using modified Jones model (1995). The study also examines using the widely used Mishkin (1983) test to whether equity market prices accruals in India. The study is conducted for profit/loss-making firms separately as well as for a hedge portfolio of firms based on the lowest to highest accruals.FindingsThe empirical study of DA of 1,135 listed Indian companies (non-financial) during 2003–2011 shows that the estimated average DA of the corporate sector in India comes to 1 percent of the total assets of these firms. An empirical analysis whether equity market prices DA in India finds no evidence of investors/market pricing DA. Empirical evidence also finds that the results are invariant for profit/loss-making firms as well as portfolio of firms based on the lowest to highest accruals in the Indian context. The empirical evidence shows that the Indian equity market is inefficient with regard to the incorporation of accruals in expected returns of stocks.Research limitations/implicationsThis study builds on the previous literature on accrual pricing in the context of the USA and developed markets. The study extends the empirics to the one of the largest emerging market economy – India. This issue is important not only to investors, but also to policy makers and researchers because the mispricing of accruals could potentially lead to misallocation of capital. The study has implications for stock/firm valuations and cost of equity/capital.Originality/valueThis is the first study for the pricing of accruals and test of semi-strong efficiency of the Indian stock market.

Resolving the Reliance on Fixed Estimation Dates in the Implied Cost of Equity Capital Approach

Abstract Our study’s objective is to develop and analyze a dynamic approach for estimating firms’ expected cost of equity capital. We contribute to the literature by enabling the usage of any required estimation date, resolving the major shortcoming of the existing models—their reliance on one fixed estimation date. This paper presents our model and discusses it from the perspective of the extant body of literature. We show that the current state of the art approach in dynamic estimation does not satisfy theoretical and practical demands, and offers scope for significant improvements. We conduct our analysis by specially considering capital market efficiency, the consistent appreciation of cash flows with respect to timing, and straightforward practical implementation for researchers and practitioners. Building on semi-strong capital market efficiency, the analysis reveals further insights into residual income valuation as we demonstrate that any realization of residual income in the course of the year is irrelevant to valuation in the absence of dividend realization. Consequently, assumptions regarding the shape of earnings in the course of the year are also irrelevant to valuation. Additionally, our theoretically founded model conveniently facilitates the undistorted incorporation of different fiscal year-ends in large samples and avoids stale measures of expected cost of equity capital.

Semi-strong inefficiency in the fixed odds betting market: Underestimating the positive impact of head coach replacement in the main European soccer leagues

In this paper we analyse the efficiency of the sports betting market, seeking to ascertain whether the market is efficient in the case of fixed odds provided by bookmakers in the four major European soccer leagues under the semi-strong efficiency hypothesis. By examining the trends of odds in the event of a major change in expectations about team results, i.e. when the head coach of a team is replaced, we attempt to verify the argument that a profitable strategy for the bettor is likely to be possible. In this case, the market under consideration would be inefficient. Analysing the average effect of head coach replacement, we find a positive impact on team performance. Based on this information, we build a betting strategy to find out whether the bookmakers’ odds absorb this change in expectations about the winning probability of involved teams. Comparing our strategy result with a distribution generated in a Monte Carlo experiment, we conclude that the betting market is inefficient in its semi-strong form.

THE IMPACT OF BANK RESTRUCTURING ANNOUNCEMENT ON THE BANKING STOCK PRICES: The Cases of Indonesia’s Banking Reforms on March 13, 1999, and The Issuance of Government Bonds on May 28, 1999

This study is an event study that aims to investigate how successful the banking reforms measures that has already been done by the Indonesian government in order to strengthen its banking system. There were two events to be investigated in this study, first (1) The banking reforms announcement on March 13, 1999 which consists of the closure of 38 private banks, the taken-over of 7 private banks, 9 private banks will be recapitalized, and let 73 private banks to continue their operation without joining the recapitalization program; second (2) on May 28, 1999 Minister of Finance issued government bonds amounted to Rp 103,831 trillion to complete the private banks’ recapitalization, and also issued the other government bonds to repay the obligations of frozen commercial banks’ and rural banks’ regarding its liquidity support, to Bank Indonesia amounted to Rp 53,779 trillion.These two events above, are expected to be good news or favorable information for investors on the Jakarta Stock Exchange (JSX), and should be responded positively by investors which indicates significantly increases on banking stocks after the event dates.Thirteen samples of banking stocks which were listed on the Jakarta Stock Exchange (JSX) at the beginning of 1997 were used to investigate the reaction of banking stocks around the dates of these two events. By using the paired-samples mean difference test, we did not find significant differences between abnormal returns before and after the event dates. Furthermore, the cumulative abnormal return of banking stocks around the banking reforms announcement on March 13, 1999 and the issuance of government bonds announcement on May 28, 1999 were decreasing gradually until it reached the negative area. Trading Volume Activity (TVA) test, on the banking stock volume around the banking reforms announcement on March 13, 1999 has found that TVA of banking stocks after the event date was significantly greater than TVA of banking stocks before the event date. The result was not found on the issuance of government bonds event.In general, from these results, it can be concluded that the banking reforms measures done by the government was not successfully implemented from the market’s point of view.The abnormal return tests have been conducted, yet it is still found a significant abnormal return around both the banking reforms announcement on March 13, 1999 and the issuance of government bonds announcement on May 28, 1999. These findings did not support the semi-strong efficiency of the Jakarta Stock Exchange (JSX).

Effect of Declaration of GST Rates and Changes in the GST Rates on the Sectorial Indices of National Stock Market

As per the Hypothesis of efficient market, the market is sectioned in three sections in view of how efficiently the market reacts to the private and public information. The main objective of this paper is to check whether there is a presence of volatility in the market due to declaration of GST rates and the declaration of changes in the GST rates and test semi-strong efficiency of Indian stock market. It was discovered that the declaration of GST rates and declaration of changes in GST rates did create an effect on the volatility of stock market. Goods and Service Tax has replaced the existing cascading taxes levied by the governments. It is going to change the way taxes are levied which effects the sentiments of the investors which can been analysed on the reaction of the investors towards stock market. The closing prices of NSE 10 sectorial indices and Nifty index has been used for conducting the study. The study is conducted using OLS, GARCH, and TGARCH. Thus, the study is useful to the regulatory bodies, investors and portfolio managers.

Reaksi saham perbankan terhadap penurunan BI rate April 2016 dan implikasinya terhadap strategi investasi: pengujian terhadap hipotesis pasar efisien

Stagnation of BI Rate during year 2015 on 7.5% level, causing a profit growth deceleration and stock price compulsion in banking sector. BI rate and BI 7-Day Repo Rate policy announcement on April 21st 2016 is a new relevant information for banking sector in Indonesia. Because both are as an interest rate reference for determining deposit and landing interest rate, which directly related to banking sector profit and expenses. This study verify an abnormal return existence during the announcement, in order to observe the market ability to directly absorb the relevant information and reflected in the stock price of the banking sector. The procedures which run in this study is also to test the market efficiency theory in the semi strong form.This study indicate that during the observation period there is no existence of abnormal return, which is show that the market are directly absorb the new relevant information and reflected it in the stock prices. Thus the market indicate as semi strong efficient.Investor decision making implication refer to this study result is there will not be an optimal return for them if they applied an active investment strategy during this period.So, in this semi strong market efficiency situation, it is better for the investor not to apply the active investment strategy.

Semi-strong efficiency of Bitcoin

This research examines the semi-strong efficiency of Bitcoin in the Bitstamp and Mt.Gox markets, showing how the digital currency responds to monetary policy and Bitcoin events. On the one hand, we observe that Bitcoin has become more efficient over time in relation to its own events. On the other hand, Bitcoin is not affected by monetary policy news, highlighting the absence of any kind of control on Bitcoin. These findings are relevant for investors and policymakers since Bitcoin is a financial asset without any connection to the measures of central banks.

REAKSI PASAR MODAL INDONESIA TERHADAP PENGUMUMAN KEMENANGAN DONALD TRUMP DALAM PILPRES AMERIKA SERIKAT 2016

Penelitian ini bertujuan untuk mengetahui ada tidaknya abnormal return setelah peristiwa pengumuman kemenangan Donald Trump, dalam Pemilu Presiden Amerika Serikat 2016 pada saham LQ-45. Penelitian ini menggunakan pendekatan event study, yaitu pendekatan yang digunakan untuk menguji efisiensi pasar bentuk setengah kuat. Sampel yang digunakan dalam penelitian ini adalah perusahaan yang terdaftar pada indeks LQ-45. Expected return dalam penelitian ini dihitung menggunakan market-adjusted model. Berdasarkan hasil uji-t ditemukan bahwa peristiwa pengumuman kemenangan Donald Trump dalam Pilpres Amerika Serikat 2016 menimbulkan reaksi pasar. Reaksi pasar dapat dilihat dari adanya abnormal return signifikan, yaitu pada H+1, H+3, H+4 dan H+5. Ditemukannya abnormal return signifikan pada H+3, H+4 dan H+5 berarti bahwa pasar tidak efisien karena reaksi terjadi berkepanjangan.
 Kata Kunci : reaksi pasar, efisiensi pasar bentuk setengah kuat, peristiwa politik.

Effect of GST Rate Announcement on Sectorial Indices of National Stock Exchange

The present article aims to study the reaction of Indian Capital Market with respect to the announcement of GST rates and also tries to test semi-strong efficiency of the stock market. The performance of stock market and its behaviour serves as an indicator of the reactions of the economy of the nation. The Goods and Services Tax is a major tax reform in India which is most likely to boost the economic growth of the country. This expectation of the investors is assumed to be transformed to stock price returns that are either negative or positive. Therefore the present study observes the reaction of stock market to the announcement of much awaited GST rates on May 8th 2017. The study is conducted using the daily closing prices of various NSE sectorial and thematic indices. OLS, GARCH and TGARCH and event study is used for the study. The findings of the study are useful to the portfolio managers, investors, and regulatory bodies.

Stock Market Reaction to Impairment Announcement of Listed Manufacturing Companies in Sri Lanka

This study investigates the reaction of market and efficiency of market to announcement of impairment loss write down in Colombo Stock Exchange (CSE) from 2008 to 2014. This research is identified fifty-eight events of twenty listed manufacturing companies in CSE. The existent study used the standard event study approach to find the results. The hypotheses of operational were framed and results discovered that 55% of Average Abnormal Return (AAR) are positively and 45% of AARs are negatively on the occasion day “0” (event day). The results reveal negative AARs of -0.37% and impact of negative significant on Share Price (SP) (t=-1.6682) at 10% level which incurred on the impairment loss announcement date. These results shows that impairment loss writes down events indicate significant negative information to the CSE. End of the windows period abnormal returns are gained by market as positive return of CAAR of 9.15% during the windows period of 61 days. It reveals that CSE has not supported to the semi-strong form market efficiency which is run on publicly available information on CSE. Study focused that the CSE was not semi-strong efficient market. The outcome of the research will help to identify the market efficiency of CSE and do the necessary action by the Sri Lankan government and CSE to protect the investors and support to the economic growth of the country.