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Book part
Publication date: 4 July 2019

Çağatay Başarir and Özer Yilmaz

Starting in the 1980s, financial liberalization and technological developments have enabled individual investors to participate in financial markets and carry out easy…

Abstract

Starting in the 1980s, financial liberalization and technological developments have enabled individual investors to participate in financial markets and carry out easy transactions. With these developments, academics began to wonder how the individual investors decide to invest and what factors affect these decisions.

According to traditional finance theory, it is suggested that markets are efficient and investors show rational behaviors in their financial purchasing decisions. However, in many studies conducted in recent years, it was determined that investors included emotional elements as well as rational elements in their decision-making process and therefore exhibited irrational behaviors by believing rumors instead of real information. It is thought that many factors such as personal characteristics, psychological factors, demographic and socio-economic factors play a role in the behavior of investors in purchasing a financial product.

In this study, the importance of herd behavior, which is one of the psychological factors that play a very important role in financial markets, on financial product purchasing process is examined in the light of the behavioral finance theory. It is thought that information included in the study will be useful for researchers who want to study herd behavior and for those who are interested in the subject.

Article
Publication date: 1 February 1993

Richard Dobbins

Sees the objective of teaching financial management to be to helpmanagers and potential managers to make sensible investment andfinancing decisions. Acknowledges that financial…

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Abstract

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

Details

Management Decision, vol. 31 no. 2
Type: Research Article
ISSN: 0025-1747

Keywords

Book part
Publication date: 23 August 2017

Jakob Lyngsø Jørgensen and Christoffer Breum Nielsen

The purpose of this study is to contribute to existing financial literature within a less researched area through a systematic, organized, and holistic approach. This study…

Abstract

The purpose of this study is to contribute to existing financial literature within a less researched area through a systematic, organized, and holistic approach. This study advances the notion of considering terrorist attacks as a heterogeneous group of events by employing a multidimensional approach. The event study methodology was used to investigate the impact of 46 terrorist attacks occurring on the soil of OECD countries since 1990 on stock markets in US, UK, Spain, and Denmark. Thereby, terrorist attacks are considered as events conveying information to financial markets, which is processed by investors and subsequently reflected in security prices. This chapter is the first contribution within financial literature to distinguish and categorize terrorist attacks through several dimensions and investigate the effect of various characteristics on stock markets. The multidimensional analytical approach consisted of six dimensions, which included an examination of the national stock markets, differences across industries, the underlying threat characteristics, the size of the attack, and the development over time and geospatial aspects. It is concluded that terrorist attacks exhibiting international threat characteristics result in significantly larger and boundary spanning negative abnormal returns, which impact stock markets beyond the country in which the attack occurred. Additionally, the size of the terrorist attack amplifies the negative impact on stock markets. However, while the impact on stock markets was found to be immediate indicating that stock markets are quick and efficient in absorbing new information, the negative impact is likely to evaporate within five trading days.

Details

The Responsive Global Organization
Type: Book
ISBN: 978-1-78714-831-4

Keywords

Article
Publication date: 25 January 2008

Batool Asiri

This study seeks to measure the behaviour of stock prices in the Bahrain Stock Exchange (BSE), which is expected to follow a random walk. The aim of the study is to measure the…

3202

Abstract

Purpose

This study seeks to measure the behaviour of stock prices in the Bahrain Stock Exchange (BSE), which is expected to follow a random walk. The aim of the study is to measure the weak‐form efficiency.

Design/methodology/approach

Random walk models such as unit root and Dickey‐Fuller tests are used as basic stochastic tests for a non‐stationarity of the daily prices for all the listed companies in the BSE. In addition, autoregressive integrated moving average (ARIMA) and exponential smoothing methods are also used. Cross‐sectional‐time‐series is used for the 40 listed companies over the period 1 June 1990 up until 31 December 2000.

Findings

Random walk with no drift and trend is confirmed for all daily stock prices and each individual sector. Other tests, such as ARIMA (AR1), autocorrelation tests and exponential smoothing tests also supported the efficiency of the BSE in the weak‐form.

Practical implications

The finding of the study is a necessary piece of information for all investors whether in Bahrain or dealing with Bahrain stock market. Listed firms could also benefit from the findings by seeing the true picture of their stock price. Since, Bahrain is considered as an emerging market, the new methodologies used could be replicated for all other emerging markets. In addition, the finding is used as a base for testing the market efficiency in the semi‐strong form, which has not yet been tested by any researcher.

Originality/value

This study will add value to the literature of market efficiency in emerging market since it is the only study which covers all the listed companies and over a long period of time. To confirm the weak‐form efficiency in Bahrain, the study is unique in using five different methods in the same paper which have not been found in the previous literature.

Details

International Journal of Emerging Markets, vol. 3 no. 1
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 3 January 2018

Wei Rong Ang and Olaf Weber

This paper aims to analyze the market efficiency of socially responsible investment in Korea. The authors used the daily price of the Dow Jones Sustainability Index Korea between…

Abstract

Purpose

This paper aims to analyze the market efficiency of socially responsible investment in Korea. The authors used the daily price of the Dow Jones Sustainability Index Korea between January 2006 and December 2015.

Design/methodology/approach

To analyze the unpredictability of the returns, the authors conducted runs tests, such as the Dickey–Fuller test, the Philip–Perron test, the variance ratio test and autocorrelation tests. These tests investigate whether the future price of socially responsible investment in Korea is dependent on its previous price. If the relationship is dependent, this will violate the theory of weak form of efficient market hypothesis which explains that the past price movements and data do not affect stock prices. Therefore, investors cannot gain any abnormal return by extrapolating the historical data.

Findings

The results suggest that the weak form of the efficient market hypothesis is not valid for the Dow Jones Sustainability Index Korea. This implies that the future price of the index is correlated with past prices. Hence, the future movement of socially responsible investment in Korea can be predicted and enables socially responsible investors to gain abnormal returns.

Originality/value

This is the first study to investigate the market efficiency of socially responsible investment in Korea.

Details

Journal of Global Responsibility, vol. 9 no. 1
Type: Research Article
ISSN: 2041-2568

Keywords

Article
Publication date: 22 March 2019

David Peón, Manel Antelo and Anxo Calvo

The efficient market hypothesis (EMH) states that asset prices in financial markets always reflect all available information about economic fundamentals. The purpose of this paper…

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Abstract

Purpose

The efficient market hypothesis (EMH) states that asset prices in financial markets always reflect all available information about economic fundamentals. The purpose of this paper is to provide a guide as to which predictions of the EMH seem to be borne out by empirical evidence.

Design/methodology/approach

Rather than following the classic three groups of tests for the different forms of EMH that are common in the literature, the authors consider how the two alternative definitions of the EMH and the joint hypothesis problem impact on the tests and leave the controversy unsolved. The authors briefly report the antecedents, the main theoretical and empirical contributions and recent literature on each type of tests.

Findings

Eventually, as a summary for each type of tests, the authors provide a critical view on the main sources of acrimony between the alternative schools of thought in understanding asset price formation.

Originality/value

The paper may be seen as an up-to-date introductory review for researchers on the different tests of the EMH performed, and for newcomers to understand the key sources of acrimony between rationalists and behaviorists.

Details

Review of Accounting and Finance, vol. 18 no. 2
Type: Research Article
ISSN: 1475-7702

Keywords

Open Access
Article
Publication date: 30 June 2021

Shreya Sharda

This study aims to evaluate the short-term impact of brokerage analysts’ recommendations on abnormal returns using a sample selected from the S&P BSE 100 in the Indian context…

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Abstract

Purpose

This study aims to evaluate the short-term impact of brokerage analysts’ recommendations on abnormal returns using a sample selected from the S&P BSE 100 in the Indian context. The efficient market hypothesis, specifically, its semi-strong form, is tested for “Buy” stock recommendations published in the electronic version of Business Standard. The crucial issue is, are there any abnormal returns that can be earned following a recommendation? If so, how quickly do prices incorporate the information value of these recommendations? It tests the impact of analyst recommendations on average abnormal returns (AARs) and standardized abnormal returns (SRs) to determine their statistical significance.

Design/methodology/approach

Using a sample of stock recommendations published in the e-version of Business Standard, the event study methodology is used to determine whether AARs and SRs are significantly different from zero for the duration of the event window by using several significance tests.

Findings

The findings indicate a marginal opportunity for profit in the short term, restricted to the event day. However, the effect does not persist, i.e. the market is efficient in its semi-strong form implying that investors cannot consistently earn abnormal returns by following analysts’ recommendations. Post the event date, the market reaction to analyst recommendations becomes positive, however, insignificant until the ninth day after the recommendation providing support to the underreaction hypothesis given by Shliefer (2000) and post-recommendation price drift documented by Womack (1996). The study contributes by using different statistical tests to determine the significance of returns.

Practical implications

There are important implications for traders, investors and portfolio managers. The speed with which market prices incorporate publicly available information is useful in formulating trading strategies. However, stock characteristics such as market capitalization, volatility and level of analyst coverage need to be incorporated while making investment decisions.

Originality/value

The study contributes by using different statistical tests to determine the significance of returns.

Details

Vilakshan - XIMB Journal of Management, vol. 19 no. 1
Type: Research Article
ISSN: 0973-1954

Keywords

Article
Publication date: 18 May 2015

Fawzan Abdul Aziz Al Fawzan

– The purpose of this paper is to examine volatility and the weak-form efficient market hypothesis (random walk) of world spot crude oil market.

Abstract

Purpose

The purpose of this paper is to examine volatility and the weak-form efficient market hypothesis (random walk) of world spot crude oil market.

Design/methodology/approach

The study uses the generalized autoregressive conditional heteroskedasticity (GARCH-M), exponential generalized autoregressive conditional heteroskedasticity (EGARCH), and threshold GARCH (TGARCH) models. The data are selected from three markets: Dubai Vetch (DV), West Texas Intermediate, and Europe Brent Spot Price.

Findings

The weak-form efficient market (random walk) hypothesis was rejected for all estimated GARCH-M, EGARCH, and TGARCH models, indicating that these markets are inefficient and predictable. For daily data, the empirical results showed the presence of asymmetric effects, and the conditional variance process was found to be highly persistent.

Originality/value

This study is unique in its nature as it examines three markets on three continents. In addition, one of these markets (DV) was not carried out by the previous study. This work takes into account the market location.

Details

Journal of Economic and Administrative Sciences, vol. 31 no. 1
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 23 August 2013

Odilon José de Oliveira Neto and Fabio Gallo Garcia

This paper investigates the efficiency of the futures market for Brazilian live cattle to predict prices in the spot market of Argentinian steers. The lack of derivatives related…

Abstract

Purpose

This paper investigates the efficiency of the futures market for Brazilian live cattle to predict prices in the spot market of Argentinian steers. The lack of derivatives related to the beef market in the futures exchange in Argentina was the main factor behind the decision to analyse the efficiency of the Brazilian live cattle futures as a predictor of spot prices of Argentinian steers.

Design/methodology/approach

We opted to employ the efficient markets hypothesis to approach the question. The hypothesis that futures prices are non‐biased predictors of spot prices is considered to be a true proposition only if the efficient markets hypothesis is not rejected. In methodological terms, the efficiency of the futures market for Brazilian live cattle relative to the spot market of Argentinian steers was verified using the Johansen co‐integration test. A vector error correction model – which enables verification of the question of bias in the prediction of prices, was used to estimate the long‐term equilibrium between spot and futures prices.

Findings/originality/value

The results provided no evidence of bias in the prediction of prices and found the predictive efficiency of the Brazilian live cattle futures market relative to the spot market of Argentinians steers to be approximately 80 per cent. Thus, the future prices of Brazilian live cattle can expressly assist participants in the Argentinian beef production chain to predict the spot prices of steers.

Purpose

Esse trabalho verifica a eficiência do mercado futuro do boi gordo brasileiro em relação ao mercado a vista dos novilhos argentinos. A ausência de derivativos relacionados ao mercado da carne bovina em bolsa de futuros na Argentina foi o principal aspecto motivador da análise da eficiência do mercado futuro do boi gordo brasileiro como preditordos preços a vista dos novilhos argentinos.

Design/methodology/approach

Assim sendo, optou‐se por uma abordagem à luz da teoria da hipótese dos mercados eficientes. A hipótese de que os preços futuros são preditores não viesados dos preços a vista é tida como uma proposição verdadeira somente se a hipótese de eficiência de mercado não for rejeitada. No contexto metodológico, a eficiência do mercado futuro do boi gordo brasileiro em relação ao mercado a vista dos novilhos argentinos foi verificada a partir do teste de cointegração de Johansen, enquanto que o equilíbrio no longo prazo entre os preços a vista e futuros, que possibilita a verificação da questão do viés na predição dos preços, foi estimado por um modelo vetorial de correção de erro.

Findings/Originality/value

Os resultados evidenciaram o não viés na predição dos preços e a eficiência do mercado futuro do boi gordo brasileiro em relação ao mercado a vista dos novilhos argentinos de aproximadamente 80%. Logo, os preços futuros do boi gordo brasileiro podem auxiliar de maneira expressiva os agentes da cadeia produtiva da carne bovina argentina na predição dos preços a vista dos novilhos.

Article
Publication date: 6 June 2008

Christos Floros and Dimitrios V. Vougas

The paper's objectives are: to address the issue of cointegration (efficient market hypothesis) between Greek spot and futures markets over the period of the crisis, 1999‐2001; to…

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Abstract

Purpose

The paper's objectives are: to address the issue of cointegration (efficient market hypothesis) between Greek spot and futures markets over the period of the crisis, 1999‐2001; to investigate the short‐run and long‐run efficiency of the FTSE/ASE‐20 stock index futures contract and FTSE/ASE Mid 40 stock index futures contract traded on the Athens Derivatives Exchange (ADEX).

Design/methodology/approach

This paper examines efficiency of the Greek stock index futures market from 1999 to 2001. A variety of econometric models are employed to test for cointegration between prices. The paper uses daily data from the Athens Stock Exchanges (ASEs) and the ADEX. A more detailed discussion on the causal relationship between spot and futures price in ADEX is obtained by using the impulse response functions of the vector error‐correction model (to study the behaviour of series from real shocks).

Findings

The results show that the Greek futures and spot prices form a stable long‐run relationship. For both FTSE/ASE‐20 and FTSE/ASE Mid 40, futures markets play a price discovery role, implying that futures prices contain useful information about spot prices. Futures markets are informationally more efficient than underlying stock markets in Greece.

Practical implications

The results have important implications for both traders and speculators. The findings are strongly recommended to financial managers dealing with Greek stock index futures.

Originality/value

The contribution of this paper is to provide evidence using data from the early stage of the ADEX (started its official operation on 27 August 1999). It also investigates whether the hypotheses exist after the dramatic rise of ASE stock prices.

Details

Managerial Finance, vol. 34 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

21 – 30 of over 34000