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Article
Publication date: 15 August 2016

Raj S. Dhankar and Devesh Shankar

The purpose of this paper is to discuss the relevance and evolution of adaptive markets hypothesis (AMH) that has gained traction in the recent years, as it provides a…

Abstract

Purpose

The purpose of this paper is to discuss the relevance and evolution of adaptive markets hypothesis (AMH) that has gained traction in the recent years, as it provides a dynamic perspective to the concept of informational efficiency.

Design/methodology/approach

This paper discusses several issues related to the concept of informationally efficient markets that have indicated efficient market hypothesis to be an incomplete portrayal of stock market behavior.

Findings

The authors find that a strict and perpetual adherence to informational efficiency is highly unlikely, and AMH provides a much more plausible description of the behavior of stock markets.

Originality/value

The authors provide a description of studies that examine the testable implications of AMH.

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Article
Publication date: 29 November 2018

Varuna Kharbanda and Archana Singh

Corporate treasurers manage the currency risk of their organization by hedging through futures contracts. The purpose of this paper is to evaluate the effectiveness of…

Abstract

Purpose

Corporate treasurers manage the currency risk of their organization by hedging through futures contracts. The purpose of this paper is to evaluate the effectiveness of hedging by US currency futures contracts by taking into account the efficiency of the currency market.

Design/methodology/approach

The static models for calculating hedge ratio are as popular as dynamic models. But the main disadvantage with the static models is that they do not consider important properties of time series like autocorrelation and heteroskedasticity of the residuals and also ignore the cointegration of the market variables which indicate short-run market disequilibrium. The present study, therefore, measures the hedging effectiveness in the US currency futures market using two dynamic models – constant conditional correlation multivariate generalized ARCH (CCC-MGARCH) and dynamic conditional correlation multivariate GARCH (DCC-MGARCH).

Findings

The study finds that both the dynamic models used in the study provide similar results. The relative comparison of CCC-MGARCH and DCC-MGARCH models shows that CCC-MGARCH provides better hedging effectiveness result, and thus, should be preferred over the other model.

Practical implications

The findings of the study are important for the company treasurers since the new updated Indian accounting standards (Ind-AS), applicable from the financial year 2016–2017, make it mandatory for the companies to evaluate the effectiveness of hedges. These standards do not specify a quantitative method of evaluation but provide the flexibility to the companies in choosing an appropriate method which justifies their risk management objective. These results are also useful for the policy makers as they can specify and list the appropriate methods for evaluating the hedge effectiveness in the currency market.

Originality/value

Majorly, the studies on Indian financial market limit themselves to either examining the efficiency of that market or to evaluate the effectiveness of the hedges undertaken. Moreover, most of such works focus on the stock market or the commodity market in India. This is one of the first studies which bring together the concepts of efficiency of the market and effectiveness of the hedges in the Indian currency futures market.

Details

International Journal of Emerging Markets, vol. 13 no. 6
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 23 August 2017

Varuna Kharbanda and Archana Singh

The purpose of this paper is to study the lead-lag relationship between the futures and spot foreign exchange (FX) market in India to understand the price discovery…

Abstract

Purpose

The purpose of this paper is to study the lead-lag relationship between the futures and spot foreign exchange (FX) market in India to understand the price discovery mechanism and the relationship between these two markets.

Design/methodology/approach

The estimation of lead-lag relationship is realized in three steps. First unit root and stationarity tests (Augmented Dickey-Fuller, Phillips-Perron, and Kwiatkowski-Phillips-Schmidt-Shin) are applied to check the stationarity of the data. Second, cointegration tests (Engle and Granger’s residual based approach and Johansen’s cointegration test) are applied to determine long run relationship between the markets. Third, error correction estimation is carried out by applying Vector Error Correction Model (VECM) to determine the leading market.

Findings

The study finds that there is a long run relationship between the futures and spot market where the futures market has emerged as the leading market for the four currencies studied in the paper.

Originality/value

Majorly, the studies on Indian FX market limit themselves to identifying the efficiency of the market and the studies which talk about the lead-lag relationship focus on the Indian stock market. This paper enhances the existing literature on Indian FX market by exploring the less explored subject of the lead-lag relationship between futures and spot FX market in India.

Details

International Journal of Managerial Finance, vol. 13 no. 5
Type: Research Article
ISSN: 1743-9132

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Book part
Publication date: 7 October 2010

Florence P. Bogacia and Emilyn Cabanda

This chapter investigates the financial performance and technical efficiency of the 26 listed firms in the services sector of the Philippine Stock Exchange over the period…

Abstract

This chapter investigates the financial performance and technical efficiency of the 26 listed firms in the services sector of the Philippine Stock Exchange over the period 1998–2007, using the DuPont system and the super-efficiency data envelopment analysis (SE-DEA). Empirical findings revealed a negative return on equity for the sector and the presence of outliers in the sample. We also verified a robust significant association between the financial and technical performances of the sector.

The chapter offers new significant contributions to knowledge in terms of the multidimensional performance evaluation and the efficiency of the stock market, especially in developing economies, which has not been a well-researched area. Managerial implications are also identified for the improvement of the firms’ management and the usefulness of the SE-DEA model in performance management.

Details

Applications in Multicriteria Decision Making, Data Envelopment Analysis, and Finance
Type: Book
ISBN: 978-0-85724-470-3

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Abstract

Details

Building the Good Society
Type: Book
ISBN: 978-1-83867-629-2

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Article
Publication date: 18 October 2019

Reza Hesarzadeh and Javad Rajabalizadeh

Informational efficiency is a fundamental aspect of capital market quality, and therefore, regulators, managers and practitioners attempt to find ways to improve the…

Abstract

Purpose

Informational efficiency is a fundamental aspect of capital market quality, and therefore, regulators, managers and practitioners attempt to find ways to improve the informational efficiency. Since prior studies primarily focus on the numerical attributes of corporate reporting, it is not yet adequately known whether or not the linguistic attributes of corporate reporting affect informational efficiency. Thus, the purpose of this paper is to examine whether corporate reporting readability (readability), as an important linguistic attribute of corporate reporting, affects informational efficiency.

Design/methodology/approach

To measure readability, this paper uses Fog index. Moreover, to measure informational efficiency, the paper uses stock return variance ratios.

Findings

The findings reveal a positive and significant association between readability and informational efficiency. Moreover, the findings show that the association of readability and informational efficiency is stronger for firms facing higher information asymmetry. The findings further document the spillover effect of readability, in the sense that the readability of economically related public firms affects a firm’s informational efficiency. Overall, the results support the arguments that readability enhances informational efficiency.

Originality/value

This study contributes to the literature by providing evidence on the internalities and externalities of readability in the context of informational efficiency. Thus, the study will be of interest to regulators, managers and practitioners, especially in emerging capital markets, who tend to find practical and easy ways to improve informational efficiency.

Details

Asian Review of Accounting, vol. 27 no. 4
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 25 May 2010

Alok Dixit, Surendra S. Yadav and P.K. Jain

The purpose of this paper is to assess the informational efficiency of S&P CNX Nifty index options in Indian securities market. The S&P CNX Nifty index is a leading stock…

Abstract

Purpose

The purpose of this paper is to assess the informational efficiency of S&P CNX Nifty index options in Indian securities market. The S&P CNX Nifty index is a leading stock index of India, consists of 50 most frequently traded securities listed on NSE. For the purpose, the study covers a period of six years from 4 June 2001 (the starting date for index options in India) to 30 June 2007.

Design/methodology/approach

The informational efficiency of implied volatilities (IVs) has been tested vis‐à‐vis select conditional volatilities models, namely, GARCH(1,1) and EGARCH(1,1). The tests have been carried out for “in‐the‐sample” as well as “out‐of‐the‐sample” forecast efficiency of implied volatilities.

Findings

The results of the study reveal that implied volatilities do not impound all the information available in the past returns; therefore, these are indicative of the violation of efficient market hypothesis in the case of S&P CNX Nifty index options market in India.

Practical implications

The finance managers, in Indian context, should rely on conditional volatility models (especially the EGARCH(1,1) model) compared to IV‐based forecasts to predict volatility for the horizon of one week. The stock exchanges and market regulator (SEBI) need to take certain initiatives in terms of extending the short‐selling facility and start trading of volatility index (VIX) to enhance the accuracy of IV‐based forecasts.

Originality/value

The paper addresses an issue which is still unexplored in the context of Indian securities market and in that sense makes an important contribution to literature on microstructure studies.

Details

Journal of Advances in Management Research, vol. 7 no. 1
Type: Research Article
ISSN: 0972-7981

Keywords

Content available
Article
Publication date: 28 February 2019

Aymen Ben Rejeb and Mongi Arfaoui

The purpose of this paper is to investigate whether Islamic stock indexes outperform conventional stock indexes, in terms of informational efficiency and risk, during the…

Abstract

Purpose

The purpose of this paper is to investigate whether Islamic stock indexes outperform conventional stock indexes, in terms of informational efficiency and risk, during the recent financial instability period.

Design/methodology/approach

The paper uses a state space model combined with a standard GARCH(1,1) specification while taking into account structural breakpoints. The authors allow for efficiency and volatility spillovers to be time-varying and consider break dates to locate periods of financial instability.

Findings

Empirical results show that Islamic stock indexes are more volatile than their conventional counterparts and are not totally immune to the global financial crisis. As regards of the informational efficiency, the results show that the Islamic stock indexes are more efficient than the conventional stock indexes.

Practical implications

Resulting evidence of this paper has several implications for international investors who wish to invest in Islamic and/or conventional stock markets. Policy makers and even academics and Sharias researchers should as well take preventive measures in order to ensure the stability of Islamic stock markets during turmoil periods. Overall, prudent risk management and precocious financial practices are relevant and crucial for both Islamic and conventional financial markets.

Originality/value

The originality of this study is performed by the use of time-varying models for volatility spillovers and informational efficiency. It considers structural break dates that think about the dynamic effect of informational flows on stock markets. The study was developed in a global framework using international data. The global analysis allows avoiding country specific effects.

Details

European Journal of Management and Business Economics, vol. 28 no. 3
Type: Research Article
ISSN: 2444-8494

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Article
Publication date: 24 May 2013

Neophytos Lambertides and Khelifa Mazouz

The aim of this study is to examine the impact of mandatory International Financial Reporting Standards (IFRS) adoption on the informational efficiency, market stability…

Abstract

Purpose

The aim of this study is to examine the impact of mandatory International Financial Reporting Standards (IFRS) adoption on the informational efficiency, market stability, and price adjustment of underlying stocks in Europe.

Design/methodology/approach

This study examines 1,187 stocks from 20 European countries to assess the impact of the mandatory adoption of IFRS on certain aspects of the market quality of the adopting firms.

Findings

The observed decrease in the first order autocorrelation and the permanent component of the conditional variance indicates that the mandatory IFRS adoption enhances informational efficiency and contributes to the market stability of the underlying stocks. The authors find no evidence that IFRS adoption affects the role old news has in determining the conditional variance of adopting firms. The effects of IFRS adoption on the equity cost of capital are shown to depend on the country‐specific characteristics. Specifically, IFRS adoption is more likely to increase (decrease) the betas of stocks that are listed in the common (civil) law countries.

Research limitations/implications

Like any empirical event‐study, the validity of the results depends on the absence of confounding events.

Originality/value

To the best of the authors’ knowledge, this paper is the first to use GARCH type models to empirically examine the effects of mandatory IFRS adoption on the informational efficiency and market stability of adopting firms.

Details

Journal of Applied Accounting Research, vol. 14 no. 1
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 12 April 2013

Dennis Y. Chung and Karel Hrazdil

The aim of this paper is to examine the informational efficiency of prices of all exchange traded funds (ETFs) that are actively traded on the NYSE Arca, based on…

Abstract

Purpose

The aim of this paper is to examine the informational efficiency of prices of all exchange traded funds (ETFs) that are actively traded on the NYSE Arca, based on methodology developed by Chordia et al.

Design/methodology/approach

The authors estimate the speed of convergence to market efficiency based on short‐horizon return predictability from past order flows of 273 ETFs that were traded every day on the NYSE Arca during the first six months of 2008, and compare the resulting price formation process to that of shares traded on the NYSE and NYSE Arca.

Findings

Despite the significant differences in trading costs, volatility, and informational effects between ETFs and regular stocks, the paper documents that price adjustments to new information for ETFs occur in about 30 minutes, which is comparable to price adjustments for traditional stocks traded on Arca. In multivariate setting, the paper further shows that the speed of convergence to market efficiency of ETFs is not only significantly driven by volume, but also by the probability of informed trading.

Research limitations/implications

The findings provide direct answers and insights to questions posed in a recent SEC concept release document. The analysis of the speed of convergence provides a feasible measure to assess how efficiently prices of ETFs respond to new information.

Originality/value

The authors are first to utilize the short‐horizon return predictability from historical order flow approach to evaluate the price formation process of ETFs and to provide evidence on the determinants of its efficiency.

Details

Managerial Finance, vol. 39 no. 5
Type: Research Article
ISSN: 0307-4358

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