Strong-form Efficiency Research Articles

An Event Study Analysis on Semi - Strong Form Efficiency of Selected Auto Index Stocks Listed in National Stock Exchange

The purpose of this paper is to investigate the dynamic constituents that have an impact on the stock prices in assessing the capital market efficiency. The study focuses on selected auto index stocks to investigate the impact of specific events on stock prices and market efficiency by employing relevant statistical analyses. The methodology involves identifying key event such as Dividend announcement during the study period 2022- 2023 of five auto index companies. Through the examination of abnormal returns and cumulative abnormal returns surrounding these events, the study aims to assess the speed and efficiency with which capital markets incorporate new information. The study aims to contribute valuable insights into the responsiveness of capital markets to significant events within the automotive industry by shedding light on the efficiency and incorporation of the information by events on stock to become reactants through stock prices.

Analysis of the market efficiency of Nigerian stock market: Evidence from post COVID-19 lockdown

Goal: to assess the efficiency of the Nigerian stock market after the COVID-19 lockdown which had substantial impacts on African countries, including their local stock markets. Metodology: the empirical study was conducted by employing the GARCH models with three different error distributional assumptions with data covering the timeframe from June 2020 to December 2022. Findings: the results indicate that during the post COVID-19 period, the Nigerian stock market demonstrates inefficiency in the weak form but efficiency in the semi-strong form. Originality and contribution of the authors: this is the first empirical study in Nigeria that presents the comprehensive overview of market efficiency in the post COVID-19 period. The authors’ emphasis in the study that the levels of market efficiency are independently determined forms; the semi strong form efficiency can be attained without week form efficiency. The study emphasise the importance of implementing strict oversight, restrictions, and regulations to discourage excessively negative noise (rumour) traders and investors from engaging in short selling for profit especially in equities held by institutional investors.

Hotel and Travel Sector in Sri Lanka and Easter Attack 2019: An Event Study

This paper examines the impact of the Easter Attack, which took place in Sri Lanka, after the thirty-years of brutal civil war, on the Hotel and Travel Sector. As the hub of the Tourism Industry, the stock performance of the Hotel and Travel Sector is observed and investigated with the major objective of finding the impact of the Easter Attack and testing the Semi – Strong Form Efficiency of the Hotel and Travel Sector since three out of eight bombings has taken place in Hotels. The Event Study Methodology has been used to analyze the data and investigate the Efficient Market Hypothesis (EMH). With the Market Model implication, the Abnormal Returns is calculated by using daily stock prices on thirty-three (33) companies belong to Hotel and Travel Sector, and for the Market Return data, the daily All Share Price Index (ASPI) is taken into account. For 41 days Event Window, which includes 100 days Event Timeline, Graphical presentation of Average Abnormal Return (AAR) and Cumulative Average Abnormal Return (CAAR) and t - Statistics analysis is guided for analyzing the event. The findings of this study have shown a quick drop in both AAR and CAAR has been shown. It provides evidence for Semi – Strong Form efficiency on the event day in the Hotel and Travel Sector Stock prices since the market efficiently and negatively responded regarding the event of Easter Sunday Attack since the quick drop on the event day and the significant t-statistic at 5%. Nevertheless, a few days after the event were also showing significant results but declining continuously due to maybe investors’ over-reaction situation. However, Semi – Strong Form Efficiency could not be proved because it takes considerable time to adjust stock prices. In practice, investors will be able to trade stocks in a market except for the possibility of beating the market in the future.
 Keywords: Easter Sunday attack 2019, efficient market hypothesis, event study methodology, hotel and travel sector, Sri Lanka

Testing the efficiency of inflation and exchange rate forecast revisions in a changing economic environment

We use the Banco de la República expectations survey of external economic analysts to study whether fixed-event individual forecasts of inflation and exchange rate are updated efficiently when new information becomes available. To this end, we test for weak-form and strong-form efficiency. The novel aspects of this paper are that we relax the individual homogeneity assumption, and consider a forecasters’ information set that contains a large number of empirically relevant variables. We address model selection using two of the most popular methods available in the penalised regression literature, and a new form of multiple testing. Our results show that more than half of the analysts’ revisions are independent of one another (weakly efficient). Also, conditional on passing weak efficiency, we find that analysts use past values of inflation and exchange rate changes to revise their forecasts and a broader array of variables during periods of market instability.

Amazon Is Coming to Town: Private Information and Housing Market Efficiency

This study provides evidence of strong-form efficiency in the housing market, where prices fully incorporate private information. We use Amazon's progressive disclosure of its new headquarters locations in Virginia and New York to distinguish changes in the public's knowledge. Using a spatial difference-in-differences approach, we test whether housing prices increase before Amazon's public announcements. Housing prices near the Virginia headquarters exhibit 4.3% premia before Amazon's decision but no additional increase upon decision. Price premia for New York reach 17.5% before decision but disappear once Amazon cancels the headquarters. Other finalist cities exhibit no price premia, precluding the possibility of speculation.

How Much Information Is Incorporated into Financial Asset Prices? Experimental Evidence

Abstract We investigate the informational content of prices in financial asset markets. To do so, we use a large number of market experiments in which the amount of information held by traders is precisely observed. We derive a new method to estimate how much of this information is incorporated into market prices. We find that public information is almost completely reflected in prices but that surprisingly little private information—less than 50%—is incorporated into prices. Our estimates therefore suggest that, while semistrong informational efficiency is consistent with the data, financial market prices may be very far from strong-form efficiency.

Dividends Announcement and Semi Strong Form of Efficiency at The Nairobi Securities Exchange in Kenya

The objective of this study was to establish the effects of dividend announcement to current market prices at the Nairobi Securities Exchange, with four specific objectives; to determine the information content of dividend announcements, to determine the extent to which prices converge to new values after dividend announcements on a sector by sector basis, to establish the market reaction to announced information and also to establish whether investors can secure excess returns by acting on announced information. A 66 days event timeline was employed from 2005 to 2015 on daily closing stock prices. A sample of 179 dividend announcements from 22 listed companies in 8 sectors were drawn and analysed using an OLS Market Model. Findings of the research conclude that; dividend announcements do have an impact on stock prices for the Agricultural, Banking, Commercial, Construction, Manufacturing and Telecomm Sectors and not for the Energy Sector, Insurance Sector and the Nairobi Securities Exchange Market. It takes more than five days for prices to adjust to their correct values and this makes it possible for market players to profit from the inefficiency by earning abnormal returns. We conclude that the Nairobi Securities Exchange is not semi-strong form efficient.

Are Cryptocurrency Markets, Efficient Markets?

This paper examines the market efficiency of three key cryptocurrency markets namely: Bitcoin, Ethereum and Monero, before and during the COVID-19 pandemic. This research makes use of a Durbin-Watson test and a non-parametric runs test to test for weak-form efficiency, and two comprehensive event studies to test for semi-strong form and strong form efficiency. We conclude neither market can be considered efficient due to the presence of strong positive correlation, and inefficient reactions to our event studies. Despite this, each market became more efficient during the COVID-19 pandemic than before, due to the presence of weaker positive correlation during this timeframe, but inefficient, nonetheless. Thus, the study finds that of the tested cryptocurrency markets, none can be consider wholly efficient. This conclusion is consistent with the vast majority of existing literature.

Testing Strong Form Market Efficiency of Jordanian Capital Market: Performance Appraisal of Mutual Funds a comparable study case with Saudi Arabia

This paper analyses the strong-form efficiency of the capital market in Jordan by evaluating the performance of mutual funds over the period from 2011 to 2016, and compare it with the situation in Saudi Arabia using the Jensen modelling techniques. These tests were applied on monthly data. Results from the study show that there is no evidence of the strong-form of efficiency in either the Amman Stock Exchange or in the Saudi Arabia capital market. Therefore, investors in the Amman Stock Exchange and Saudi Arabia capital market cannot predict stocks prices or returns in the short term; with regard to firms, it suggests that the securities of firms cannot outperform the market and present market price is to a certain extent a true reflection of the present situation of their securities, in addition there is lack number availability of the mutual funds in Jordan.

Test Of Exchange Market Efficiency In Nigeria

This study investigated the foreign exchange market in Nigeria to determine the significance of past exchange rates in predicting the present exchange rates which is a test of weak form efficiency. It examined the cointegration and causal relationships between selected pairs of exchange rates to determine the semi strong form efficiency, and inspected the variant of the Random Walk Model that exchange rates in Nigeria conformed to. Secondary data sourced mainly from the Central Bank of Nigeria Statistical Bulletin 2014 and its official websites were used. The study’s data were the spot and nominal monthly average foreign exchange rate series from the official market of Naira to Dollar, Naira to Pounds, Naira to Yen, Naira to Swiss Franc and Naira to CFA Franc between January, 1986 and December, 2015. Methods used include the autocorrellation function, unit root tests, Johansen Cointegration and Granger Causality tests. Autocorrelation and unit root tests revealed that all the series were non-stationary at level and became stationary at first difference. In addition, the Johansen cointegration test revealed that there were no cointegrating equations between selected pairs of exchange rates. The Granger causality test supported no causal relationship between selected pairs of exchange rates and the coefficients of determination were highest with the assumption of intercept and trend. The findings implied that the foreign exchange market in Nigeria within the sample period was efficient in the weak and semi strong forms, that is, information in past exchange rate series and public information were fully reflected in current exchange rates, the exchange rate series lacked exploitable pattern and conformed to the Random Walk Model with intercept and deterministic trend. The study therefore recommended that a more liberalized flexible exchange rate regime and improvements in money supply, national income, local and foreign bonds.

Market Efficiency and Insider trading: Evidence from the Egyptian Stock Exchange

Insider trading in securities occurs when a person in possession of nonpublic information about a company trades in the company’s securities. Insider traders enjoy a much favorable position than other non-insider traders because of their possession of such nonpublic information, and as a result insider trading has been a major issue for stock markets, regulators and of course researchers. In order to avoid problems of information asymmetry all countries have implemented regulations, forcing insiders to provide information concerning selling or buying shares of their firms. Preventing insider trading from taking advantage over other investors is necessary to comply with securities laws. This paper reviews the existing studies on insider trading, market efficiency, regulation and laws of insider trading, and then it examines the trading activities of insiders in the Egyptian stock exchange. The statistical difference between insider trading and average market returns is then tested. Results show that differences between insider trading and average market is not significantly different than zero, which encouragingly supports possibility of achieving the strong-form efficiency hypothesis in the Egyptian stock market

How Much Information is Incorporated in Financial Asset Prices? Experimental Evidence

We investigate the informational content of prices in financial asset markets. To do so we use a large number of market experiments where the amount of information held by traders is precisely observed. We derive a new method to estimate how much of this information is incorporated in market prices. We find that public information is almost completely reflected in prices, but that surprisingly little private information---less than 50%---is incorporated in prices. Our estimates therefore suggest that while semi-strong informational efficiency is consistent with the data, financial market prices may be very far from strong-form efficiency.

Who Are the Market Beaters: Lucky Investors, Insiders or Who Else

Conditions of beating the market is always top of the interests of investors throughout the history. In this study we aim to find who beats the market using a special trade and portfolio data from a stock exchange namely Borsa Istanbul. Instead of market data, investor based data used in this paper provides us to make stronger analyses. We initially find that 87% of individual and 92% of institutional investors get returns in a random way. Then the rest of investors are investigated to determine who consistently beats the market and gets abnormal returns. And we mainly find that the market beating gets longer with increasing portfolio size and diversification, while it gets shorter with increasing turnover. Additionally, longer beating length means higher shares of women, old adults, funds and foreigner. Furthermore, we analyze the return performance of investors in our study and show that the picture becomes reversed compared to beating length criteria. Finally, the insiders are compared with other investors to understand whether the market is efficient in the strong form or not. And the findings indicate that the insiders cannot be specifically differentiated from other investors. Therefore, we end up with the evidence that there is strong form efficiency in Borsa Istanbul.

Analyzing Information Dynamics within Trading Companies: Evidence from Indian Market

The motive of the research is to assess the practices adopted by investors to counter total risk and profit with the criteria for the investment decision and to know that if insider information is providing better returns from investments. The research is a cross-sectional study of descriptive nature. Moreover, it is a causal research because of various causative influences being studied among the variables. In our study, there are often deeper psychological considerations (such as; profit earning capacity, forecasting capabilities, risk bearing attitude and several others) that even the respondent (brokers) may not be aware of. The researcher has consulted 767 share brokers, investors, and transfer agents of the equity shares. After applying content analysis over the feedback provided by them, the study has originated a questionnaire based on their interviews. The 382 respondents filled the final constructed instruments, and further were analyzed with the help of the Confirmatory factor analysis (CFA) and Exploratory factor analysis (EFA) to measure the model. The model suggests that the insider information always depends upon the profit earning capacity, forecasting capabilities, risk bearing attitude and investment decisions. The results assimilated with the theory of efficient market hypothesis (Fama; 1965) which suggests that no investor will be able to beat the market with either public or private information if the market is in the strong form of efficiency. The outcome complied after the survey did propose the same concept that insider information very soon converts into the public information.

Market Reaction to Indonesia Golden Ring Award

This research is attended to analyze market reaction to announcement of Golden Ring Award period 2008-2015. Indonesia Golden Ring Award (IGRA) which was originally called as GRA is a form of award for the telecommunications industry in which the assessment team consist of the journalists who are daily covering the telecommunications industry It used an event study methodology to empirically evidence. The research samples are focused on 6 telecommunication firms listed in Indonesian Stock Exchange with judgement sampling technique. The secondary data consists of daily closing price of shares and composite stock price index with an estimation period during 21 days by using a market adjusted model. Hypotheses are tested by one sample t-test, paired t-test and independent sample t-test. There is significant market reaction to announcement of Golden Ring Award. The second Hypothesis also accepted i.e. there is a significance in different market reaction between the firms getting Golden Ring Award and the firms not getting Golden Ring Award, especially in best operator category. Whereas in best value added category, market didn’t show significant reactions. This result gives implication related to the efficient capital market Hypothesis i.e. semi strong form efficiency are proven.

Empirical Study on the Test of Indian Stock Market Efficiency

Market efficiency is a focal point and main theme of traditional finance for long period of time. Stock markets are seen as efficient in reflecting information on individual stocks and stock market as a whole. The market efficiency can be of weak-form, semi-strong form and strong form. The data for a period of 6 years from 2011 to 2016 have been taken for 50 companies listed in S&P CNX Nifty of National Stock Exchange. With the employment of runs test and autocorrelation, the weak form of market efficiency has been tested. AARs, CAARs and t-test have been calculated to test the semi-strong form efficiency with regard to dividend announcements. Performance measures are employed to test strong form efficiency. Results of the study clearly disclosed that the stock market follows random walk that is, the market is efficient in both weak form and semi-strong form and not efficient in strong form.

Net trade and market efficiency in Grossman and Stiglitz (1980)

In this paper, we correct part (b) of Theorem 6 of Grossman and Stiglitz (GS, 1980). We demonstrate that when the private signal tends to be perfect, the market converges to strong-form efficiency, and thus informed and uninformed traders have almost homogeneous beliefs about the stock payoff, but there is still significant net trade, rather than no trade as erroneously shown by GS. We further show that when the stock price becomes more informative, and thus traders' beliefs about the stock payoff become closer, the net trade may increase.

The Analysis of Weak-Form Efficiency in the Market of Crude Oil

Crude oil is the strategic commodity whose market has become the biggest commodity market in the world over the past 40 years. The main actors in the market, such as producers, refiners, financial institutions, and individual traders are interested in recognizing some trends, patterns or anomalies in performance of oil prices and returns, they could benefit from. Such anomalies among others are calendar effects, for example the day-of-the week effect, the month-of-the year effect, holidays effect or the turn-of-the month effect. Either the calendar effects are observed for stock prices, or for commodity prices, they make the markets inefficient. According to classical Fama’s definition: a market in which prices always fully reflect available information is called efficient. However, there are 3 types of market efficiency: weak-form efficiency, semistrong-form efficiency, strong-form efficiency. The weak-form market efficiency is tested the most often. There are several tools used for its verification, for example: some statistical tests (unit root tests, autocorrelation tests, variance ratio tests), long-run relationships and correlation analysis, calendar effects analysis. Our previous research focused on searching for calendar effects in the market of crude oil (Górska, Krawiec 2015), shows the existence of the-day-of-the week and the month effects. It may imply market inefficiency. That is why the present paper is aimed at further testing weak-form market efficiency. The empirical data covers daily closing prices of crude oil in USD per barrel from 2000 to 2015 and includes, both West Texas Intermediate (WTI) and Brent quotations. Having calculated their logarithmic returns, we apply the following tests: runs test, variance ratio, autocorrelation test.

Analysis & Test of Market Efficiency: A Case Study of KSE

This study employs more recent and comprehensive data (1997-2013) for the empirical verification of weak form efficiency in Karachi Stock Exchange (KSE). We use Augmented Dickey Fuller (ADF) and Philips-Perron (PP) tests to detect unit root in the daily returns series. Further, we run Random Walk Model (RWM) to detect unit root in returns series. We use Runs test to detect any possible serial correlation in residuals. Results are in support of weak form efficiency. However, the study argues that strong form efficiency does not exist in KSE. We compare equity funds returns with KSE 100 Index returns for 10 years (2003-2012) and we find that the mean returns and standard deviations are not much different. However, the correlation between the returns is found to be low which indicates that equity funds do not mimic market index and have very concentrated portfolios comprising of growth stocks. Finally, we also compare the returns and Sharpe ratio for Islamic and conventional equity mutual funds. Since Islamic funds due to investment and trading restrictions can not exactly mimic market portfolio, the return comparison could help in studying whether the contention of EMH proponents that expert investors too can do as good as earning returns on market portfolio is entirely valid or are there some qualifications and exceptions. We report evidence that challenges the EMH proposition.

Stock Price Adjustment to Corporate Accounting Disclosure: A Quantitative Study on Dhaka Stock Exchange (DSE), Bangladesh.

This study has been designed to detect whether corporate accounting disclosures through annual report influence stock price movement in Dhaka Stock Exchange. To conduct our study, we gathered a series of panel data from 2010 through 2014 of 25 private commercial banks. Least square regression analysis has been done by incorporating fixed effect and random effect models and six models have been developed through Hausman Test. The resulting output revealed that “Earning per share”, “Return on equity” and “Net asset value per share” (book value) positively influenced stock price movement during our study period but “Earning per share” and “Net asset value per share” jointly can explain highest variation in stock price movement in DSE. Although past few studies showed weak form of market efficiency in DSE , this study conveys a positive movement of Banglidesh stock market from weak form towards strong form of efficiency.