Strong-form Efficiency Research Articles

Study on Weak Form Efficiency Market: An Empirical Study on Indian Market

According to Fama (1970), there were three different forms of pricing efficiency of the market, namely, weak-form of efficiency, semi-strong-form of efficiency, and strong-form of efficiency. In weak-form of efficiency, all historical price and trading volume information were reflected in the current stock prices and the historical price changes could not be used to predict future price movements in any meaningful way if successive stock price changes were independent of one another. This study has attempted to provide analyses of the efficiency of NSE and BSE by using more current daily price data from 1 April 2000 to 31 March 2007. Autocorrelations and runs test were employed for testing the market efficiency of the National Stock Exchange CNX nifty and S&P BSE SENSEX. The main results indicated that Indian stock market has not been efficient in price determination followed the violation of the necessary conditions for an efficient market with a developed financial system.

Performance evaluation of the construction of American military housing after the war towards local development

The US dispatched a large quantity of troops to Taiwan in 1950 and constructed American Military Housing in Shilin District. The United States military in Taiwan provided military and economic assistance. The preference to the US increased with enhancing national living standards so that local economic and cultural development were greatly affected by the introduction of the US culture. By applying DEA to measuring the performance evaluation of local governments, appropriate input/output factors are selected to efficiently evaluate the performance of local governments. To integrate the selection of input/output factors with expert opinions, reduce input costs, and avoid fuzziness in the investigation process, Fuzzy Delphi Method is utilized for sieving input/output factors. The research results show the relative efficiency of 2 local governments being strong-form efficiency, with the efficiency = 1, revealing the better relative efficiency. The relative efficiency of 3 local governments, 25% of all DMUs, appears in 0.9–1, presenting the relative efficiency of such local governments being more easily enhanced. The efficiency of 7 local governments, 58% of all DMUs, is lower than 0.9, showing the distinct inefficiency.

ANALISIS EFISIENSI PASAR MODAL SYARI’AH BENTUK LEMAH DAN SETENGAH KUAT PADA BURSA EFEK INDONESIA

The purpose of this study was to test the efficiency of the Islamic capital market is weak form by using price information in 2014 and forms a strong half by using information announcement of fuel price increases in November 2014. Sampling was done by purposive sampling method. For weak form efficiency test sample obtained 30 companies, and 24 samples to test the efficiency of a semi-strong. Capital market efficiency hypothesis testing is done with a weak form Run test. While the half strong form efficiency hypothesis was tested with One sample test. Results from this study are in the period 2014 Islamic capital market has been efficient in weak form by using price information, evidenced by the pattern of change in the return 28 of the 30 shares of the company are random sample (random), and has been efficient in the form of a strong half by using information price increase BBM, as evidenced by the occurrence of significant abnormal returns around the announcement date of the increase in fuel, ie at t0 (the day of the announcement), t + 2 (two days after the announcement) and T + 5 (five days after the announcement).

Price Discovery through Options

How does private information get incorporated into option prices? To study this question, I develop a non-linear, noisy rational expectations equilibrium model with asymmetric information and a full menu of call and put options available for trading. The model allows for an arbitrary distribution of the underlying payoff and general trader preferences. All equilibrium prices and portfolios are obtained in closed form. Learning from option prices is characterized explicitly in terms of a novel object, the second derivative of the signal-to-noise ratio, whose sign determines whether particular shapes of option prices are "good news". I show that there is a major difference in equilibrium behaviour for constant absolute risk aversion (CARA) and non-CARA preferences due to feedback effects between wealth, price discovery, and private information: First, if informed traders have non-CARA preferences, strong-form efficiency is always obtained, independent of the amount of noise trading. Second, when informed traders have CARA preferences, the nature of equilibrium changes drastically with wealth effects of uninformed trading: If the latter have non-CARA preferences, weak-form efficiency fails and option prices are not sufficient to recover the information contained in the aggregate demand.

Testing Weak-Form Market Efficiency of Next Eleven Countries

This research is based on Efficient Market Hypothesis. Markets are divided into three form based on pricing efficiency and these are weak-form, semi-strong form and strong-form efficiency. The main research question is to investigate weak-form pricing efficiency of “next eleven” countries. We have used historical stock indices returns for ten years period starting from 09/01/2003 to 02/10/2013. Daily full period data is divided into two groups (pre-financial crisis and post-financial crisis). Pre-financial crisis start from January 2003 to March 2008 and Post-financial crisis start from April 2008 to September 2013. Weekly full period returns start from 11/09/2003 to 30/08/2013. The purpose of dividing the sample data into two groups is to check whether financial crisis had any impact on the efficiency of these markets.

Evaluating the Performance of Service Quality in the Hospitals of Traditional Chinese Medicine with Data Envelopment Analysis

After the practice of National Health Insurance, medicine industry has been fiercely changed in Taiwan. With the introduction of national health insura nce, the citizens do no t worry about medical expenses, individual financial risks are reduc ed and the development of medicine industry is accelerated to enhance the convenience of the citizens seeing a doctor. Nevertheless, the medical expenditure is rapid ly increasing, the number of times the public seeing a doctor continu ously soars to a new height, and the development between fundamental clinics and hospitals becomes seriously unbalanced. As a result, the h ealth insurance payment policies are constantly adjusted and changed and the operation of h ospitals of traditional Chinese medicine are encountering severe challenges. This study therefore tends to explo re the business performance of traditional Chi nese medicine industry. The research results would provide specific suggestions for improving the management of traditional Chinese medicine industry. Accord- ing to the qualified hos pitals of traditional Ch inese medicine and the hospitals with the dep artment of traditional Chinese medicine in 2 011, total 17 DMUs are proceeded Delphi Method and Data Envelopment Analysis. The research results present that one DMU (Decision Making Units) appears strong-form efficien cy=1 on the quality of service, about 6% of all DMUs, showing the better efficiency of the q uality of service; 6 DMUs reveal the marginal inefficiency of the quali ty of service between 0.9 and 1, about 35% of all DMUs, showing the knowledge outsourcing efficiency being easily e nhanced; and, 10 DMUs present the knowledge outsourcing inefficiency lower than 0.9, about 59% of all DMUs.

Evaluating the Performance of Service Quality in the Hospitals of Traditional Chinese Medicine with Data Envelopment Analysis

After the practice of National Health Insurance, medicine industry has been fiercely changed in Taiwan. With the introduction of national health insura nce, the citizens do no t worry about medical expenses, individual financial risks are reduc ed and the development of medicine industry is accelerated to enhance the convenience of the citizens seeing a doctor. Nevertheless, the medical expenditure is rapid ly increasing, the number of times the public seeing a doctor continu ously soars to a new height, and the development between fundamental clinics and hospitals becomes seriously unbalanced. As a result, the h ealth insurance payment policies are constantly adjusted and changed and the operation of h ospitals of traditional Chinese medicine are encountering severe challenges. This study therefore tends to explo re the business performance of traditional Chi nese medicine industry. The research results would provide specific suggestions for improving the management of traditional Chinese medicine industry. Accord- ing to the qualified hos pitals of traditional Ch inese medicine and the hospitals with the dep artment of traditional Chinese medicine in 2 011, total 17 DMUs are proceeded Delphi Method and Data Envelopment Analysis. The research results present that one DMU (Decision Making Units) appears strong-form efficien cy=1 on the quality of service, about 6% of all DMUs, showing the better efficiency of the q uality of service; 6 DMUs reveal the marginal inefficiency of the quali ty of service between 0.9 and 1, about 35% of all DMUs, showing the knowledge outsourcing efficiency being easily e nhanced; and, 10 DMUs present the knowledge outsourcing inefficiency lower than 0.9, about 59% of all DMUs.

Price Discovery Through Options

How does private information get incorporated into option prices? To study this question, I develop a non-linear, noisy rational expectations equilibrium model with asymmetric information and a full menu of call and put options available for trading. The model allows for an arbitrary distribution of the underlying payoff and general trader preferences. All equilibrium prices and portfolios are obtained in closed form. Learning from option prices is characterized explicitly in terms of a novel object, the second derivative of the signal-to-noise ratio, whose sign determines whether particular shapes of option prices are good news. I show that there is a major difference in equilibrium behaviour for constant absolute risk aversion (CARA) and non-CARA preferences due to feedback effects between wealth, price discovery, and private information: First, if informed traders have non-CARA preferences, strong-form efficiency is always obtained, independent of the amount of noise trading. Second, when informed traders have CARA preferences, the nature of equilibrium changes drastically with wealth effects of uninformed trading: If the latter have non-CARA preferences, weak-form efficiency fails and option prices are not sufficient to recover the information contained in the aggregate demand.

Nobel Price for Father of the Efficient Market Hypothesis

Nobel Price for Father of the Efficient Market Hypothesis

Search for Alpha-Ema Weighted Momentum Based Approach

By exploiting momentum strategy; “buying winner portfolio and selling portfolio” this research papers investigates the evidence against the strong form of efficiency which claims that one cannot earn excess return with historical information and excess return if any, is mere compensation of excess risk taking behavior. The study undergone during the comprehensive research reveals the evidences of the weak form of efficiency and presence of meager weak momentum effect with holding period 1 month and in rest of the cases, on inclusion of transaction cost, such strategy will perform worse than buy and hold strategy. The trading strategy has been tested on SP and to De Bondt and Thaler’s contrarian effect. In addition, the author in his research has tried to analyze the causes of momentum and contrarian effects in general and results are analyzed from the perspective of behavioral finance. Also, the paper unfolds the comprehensive analysis of the calendar effect in the markets that might contribute to the weak momentum effect observed in the result.

Why Defer to Managers? A Strong-Form Efficiency Model

We compare the efficiency with which management discretion and shareholder choice regulate hostile tender offers. This is the first paper in a long running debate that rigorously compares these legal rules to analyze both the critical informational assumptions and the interplay of those assumptions with principles of financial market efficiency. A critical innovation of our model is its focus on an informed management's choice among alternative corporate policies under the protection of the business judgment rule, but where agency costs exist. We assume that corporate assets and reinvestment opportunities are efficiently priced by financial markets, but that markets never learn the value of foregone investments. In this case, shareholder choice may create an agency problem whereby managers forego positive net present value investments that increase the risk of a hostile bid. We are able to determine analytic conditions under which the expected cost of this agency problem exceeds that of the standard agency problem usually identified with management discretion.

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.

Speculative Dynamics I: Imperfect Competition, and the Implications for High Frequency Trading

We analyze the imperfect competition among multiple informed traders in an economy with a risky asset whose liquidation value is private information and follows a mean-reverting process. The unique linear equilibrium has an analytic form and is explicitly analyzed. When there are more auctions per unit time of trading, informed traders reduce the size of their orders at the same rate as the reduction in liquidity trading. When time is continuous, neither informed trading nor liquidity trading dominates the trading volume. The competitive market maker concludes that not all orders are informed. Therefore, price sensitivity to trades is finite, and the rents from private information are strictly positive, in sharp contrast with the findings obtained by Holden and Subrahmanyam (1992). In addition, informed trades cannot collude in order to smooth their trades, as in the monopolist models by Kyle (1985) and Chau and Vayanos (2008). Thus, informed traders can add significantly to trading volume and price variance. Although informed trading can be very volatile, the risk associated with traders' profits can be arbitrarily small. We propose an alternative measure of strong-form efficiency based on the Euclidean distance between the equilibrium price and the true value of the asset. Price errors in our model can be arbitrarily small, but Euclidean distance over a finite time is always positive even when time is continuous. Under this alternative measure, different notions of market efficiency can be consistent. Our model provides a rationale for the competition among high frequency traders, and shows that batching orders less frequently does not necessarily improve market liquidity.

An Empirical Event Study on Possibilities to Earn Superior Risk Adjusted Returns of Selected Stocks by Trading on Earning Announcement

The efficient Performance of a particular stock in the market can be measured in several ways and means. The capital gain of a stock will be the major determinant of the performance of a stock. Any stock, which generates more quantum of capital gain, that stock is considered to be the efficient stock? If any market, which possesses efficient stocks, that market is considered to be the efficient market. In other words, an efficient market is one in which the market price of a security is an unbiased estimate of its intrinsic value. Market efficiency is defined in relation to information that is reflected in security prices. Market efficiency can be segregated into three levels - they are weak-form efficiency, semi-strong-form efficiency and strong-form efficiency. In the weak-form efficiency, the prices of a stock reflect all information found in the record of past prices and volumes. Whereas in the semi-strong-form efficiency, the prices of a particular stock reflect not only all information found in the record of past prices and volumes, but also all other publicly available information. In the strong-form efficiency, the stock prices reflect all available information, public as well as private. This paper focuses on the semi-strong-form efficiency of SBI and HDFC bank stocks. So, to examine the semi-strong-form efficiency of SBI and HDFC bank stocks, the Rate of return of the selected stocks were taken for fifteen days from the date of announcement of dividend and the run test was applied separately and together on the Rate of returns of the selected bank stocks. The result shows that there is no impact of announcement of dividend over the rate of return of State Bank of India and HDFC Bank stocks from the date of declaration of dividend.

The impact of exogenous information on stock value through the coloration concept: a test model

This paper examines the effect of the exogenous information on stock prices. The analysis contributes in literature on the semi strong efficiency. It brings the informational nature nearer information, defined as informative coloration, which strikes the financial market to its underlying credit. The proposed test model is based on the nonparametric statistics. This model develops the possibility to examine the whole exogenous information on stock prices variations. The statistical performance of the model during the empirical application shows its ability to anticipate correctly the movements of prices. It challenges the semi strong form of efficiency markets.JEL codes: C14, D83, G14

Strong-Form Efficiency with Monopolistic Insiders

We study market efficiency in an infinite-horizon model with a monopolistic insider. The insider can trade with competitive market makers and noise traders, and observes privately the expected growth rate of asset dividends. In the absence of the insider, this information would be reflected in prices only after a long series of dividend observations. Thus, the insider’s information is “long-lived.” Surprisingly, however, the monopolistic insider chooses to reveal her information very quickly, within a time converging to zero as the market approaches continuous trading. Although the market converges to strong-form efficiency, the insider’s profits do not converge to zero.

Efficiency in Pari-Mutuel Betting Markets across Wagering Pools in the Simulcast Era

1. IntroductionPari-mutuel wagering has been much studied in economics and finance because it functions as a controlled repeated experiment of an asset market (see Sauer 1998 for an overview). Through pari-mutuel betting, the public collectively establishes a price on each betting interest, and these prices have been found to be fairly accurate in representing the true value of the bet. The track acts as a market maker, extracting a fixed percentage (14-20%) from betting pools and redistributing the rest to the holders of the winning tickets. Because the market is repeated numerous times daily at tracks across the world, an abundance of data exists on betting markets. Furthermore, with the proliferation of simulcasting races, participation in the pari-mutuel market is no longer restricted to just those attending the races.In a speculative market, efficiency dictates that the expected return on an asset should equal the return on the entire market. Betting-market efficiency requires that no betting strategy generates above-market returns after accounting for costs (see Vaughan Williams 1999 for an extensive review of the literature). Thaler and Ziemba (1988) define a weak and strong condition for betting-market efficiency. Weak-form efficiency requires that no bets have positive expected returns. Strong-form efficiency requires all bets to have the same expected return equal to one minus the track take. Therefore, under strong-form efficiency, the probability of a horse winning a race would be equal to the percentage of money bet on that horse.This article is an empirical analysis of straight wagers, which are bets on a horse to win, place (finish in the top two), or show (finish in the top three). Numerous empirical studies have found the existence of a bias on win wagers such that favorites were underbet relative to long shots, resulting in a higher expected return for low-odds horses (Ali 1977; Asch, Malkiel, and Quandt 1982). However, other studies have found a reverse favorite-long shot bias (Busche and Hall 1988; Swindler and Shaw 1995). Explanations of the bias have included risk preference (Ali 1977; Golec and Tamarkin 1998), information disparities (Hurley and McDonough 1995, 1996; Terrell and Farmer 1996; Gandar, Zuber, and Johnson 2001), transaction costs (Hurley and McDonough 1995, 1996; Vaughan Williams and Paton 1998a, b), and market size (Busche and Walls 2000). Previous studies on place and show betting have found even more pronounced biases, and these findings have led to the formulation of profitable betting strategies, the most prominent being Ziemba and Hausch's Beat the Racetrack (Ziemba and Hausch 1984; Asch, Malkiel, and Quandt 1984, 1986; Asch and Quandt 1986; Hausch, Ziemba, and Rubinstein 1981; Hausch and Ziemba 1985). There have been few articles on betting simulations and efficiency, the most notable being Goodwin (1996), who uses forecasts of conditional probabilities to earn above-market returns.The proliferation of simulcast wagering has created an environment where relatively few betting patrons attend the races anymore, and those that do are more likely to be found in front of a television carrel watching races from around the country, rather than in the grandstand. Previously, tracks would simulcast only major races a few times a year and have their own separate betting pools for these races. A betting pool at a given track for a given race would be comprised of money from people at the track and in some instances, from off-track betting sites or phone accounts, both within the track's home state. Today, simulcast wagering allows bettors to play a multitude of races at many tracks across the country, from their home track, casino, off-track betting hub, by phone, or online, and their bets are commingled into the same pool as those made at the host track. This development has resulted in an explosion in the dollar volume wagered on horse racing in the last decade. …

Clarification and Extension of Beaver’s Definitions of Market Informational Efficiency: A Note

Beaver (1981a, 1981b) provides sound conceptual definitions of market informational efficiency. Recently, his definitions have been operationalized in experimental‐markets studies dealing with market informational efficiency. Given these successes, we extend Beaver’s definitions to make apparent the relationships among the publicly available information system and the market information system and related signals. This extension provides a foundation for distinguishing between tests of semistrong‐form and strong‐form efficiency in the contexts of Beaver’s definitions and related experimental‐markets studies. We also provide a proof which identifies the necessary and sufficient condition for the convergence of these forms of market informational efficiency.

Strong-Form Efficiency with Monopolistic Insiders

We study market efficiency in an infinite-horizon model with a monopolistic insider. The insider can trade with a competitive market maker and noise traders, and observes privately the expected growth rate of asset dividends. In the absence of the insider, this information would be reflected in prices only after a long series of dividend observations. The insider chooses, however, to reveal the information very quickly, within a time converging to zero as the market approaches continuous trading. Although the market converges to strong-form efficiency, the insider's profits do not converge to zero.

An empirical examination of exchange market efficiency

The foreign exchange market efficiency hypothesis is empirically examined for three major currencies, over the volatile 1980s. The recently available null of cointegration procedure is applied to test for the stationarity of the series under consideration and also for the cointegration status between series, the market efficiency determinant. The strength of this methodology is its ability to distinguish between unit and near unit roots. These results are then compared with our previous study where we applied the PhillipsHansen Fully Modified Ordinary Least Squares (FMOLS) procedure, which can separate between strong and weak form efficiency. In both cases, the market efficiency hypothesis is rejected for one out of three currencies, possibly due to the presence of the risk premium and/or market imperfections.