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1 – 10 of over 67000Dennis 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 methodology…
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.
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Examines the applicability of an optional rule for determining ideal product volumes and mixes under various technical and market conditions. Explains an alternative, similar…
Abstract
Examines the applicability of an optional rule for determining ideal product volumes and mixes under various technical and market conditions. Explains an alternative, similar method of estimation for use where data are inadequate. Considers difficulties and areas where the method is of dubious value.
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Dennis Chung, Karel Hrazdil and Nattavut Suwanyangyuan
The purpose of this paper is to investigate the effect of the information disclosure quantity on the pricing efficiency of stocks.
Abstract
Purpose
The purpose of this paper is to investigate the effect of the information disclosure quantity on the pricing efficiency of stocks.
Design/methodology/approach
Using a sample of large and actively traded Canadian companies listed on the Toronto Stock Exchange, the authors utilize annual reports filed on system for electronic document analysis and retrieval (SEDAR) between 2003 and 2013 to estimate the amount of publicly available information and find that the length and size of annual reports are important determinants of short-horizon return predictability from historical order flows, which is an inverse indicator of market efficiency.
Findings
The results show that longer and larger annual reports are associated with reduced information asymmetry, lower cost of immediacy, higher trading activity, and an overall improvement in the efficiency of price discovery. The results are robust to the inclusion of controls for various determinants of short-horizon return predictability, such as trading costs, volatility, informational effects and other firm-specific characteristics.
Research Limitations/implications
Collectively, the findings provide empirical support for the benefits of detailed corporate disclosure in Canada.
Originality/value
This is the first study to utilize the short-horizon return predictability approach to evaluate the efficiency of price discovery in relation to the amount of information disclosure.
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Honglei Yan, Suigen Yang and shengmin zhao
The purpose of this paper is to study the pricing efficiency of convertible bonds and arbitrage opportunities between the convertible bonds and the underlying stocks thus improve…
Abstract
Purpose
The purpose of this paper is to study the pricing efficiency of convertible bonds and arbitrage opportunities between the convertible bonds and the underlying stocks thus improve market efficiency.
Design/methodology/approach
Using nonparametric fixed effect panel data model, the authors build pricing model of convertible bonds and obtain fitted value for them. Then the authors constructs simultaneous confidence band for the smooth function to identify mispricing and study the pricing efficiency and arbitrage opportunities of convertible bonds.
Findings
Result shows, convertible bonds’ prices largely depend on stock prices. Pricing efficiency does not improve during the past few years as there are quite a few trading opportunities. Arbitrage opportunities increase as the stock prices approach it maxima, and selling opportunities for convertible bonds surpass buying opportunities which indicates that investors use market neutral strategies to arbitrage. Pricing efficiencies varies a lot and it is affected by the features of the stocks and convertible bonds. Index stocks eligible for margin trading with high liquidity enjoy higher pricing efficiency.
Research limitations/implications
The study does not take into account trading cost and risk management measures.
Practical/implications
Arbitrage between the underlying and the convertible bonds is profitable and contributes to pricing efficiency therefore should be encouraged. The regulator should pay attention to the extreme mispricing of the underlying and convertible bonds which cannot be corrected by the market as there might be manipulation.
Originality/value
Since traditional pricing methods are based on the framework of non-arbitrage equilibrium with the assumption of balanced and perfect market, there are many restrictions in the pricing process and the practical utility is somewhat limited, and the impractical assumptions lead to model risk. This study uses nonparametric regression to study the pricing of convertible bonds thus circumvents the problem of model risk. Simultaneous confidence band for smooth function identifies mispricing and explicitly reflects the variation of pricing efficiency as well as signalizes trading opportunities. Application of nonparametric regression and simultaneous confidence band in derivative pricing is advantageous in accuracy and simplicity.
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Roland Eisenhuth and David Marshall
The economic doctrine of market efficiency plays an essential role in securities fraud litigation. In lawsuits alleging violations of SEC Rule 10b-5, the plaintiffs typically must…
Abstract
The economic doctrine of market efficiency plays an essential role in securities fraud litigation. In lawsuits alleging violations of SEC Rule 10b-5, the plaintiffs typically must argue that the market for the relevant security is efficient, and therefore that the “fraud on the market” doctrine applies. However, the term “market efficiency” is often applied imprecisely. In this chapter, we discuss properties of efficient markets that have been proposed in academic research, legal scholarship, and case law. We explore what must be assumed about capital markets for each of these properties to hold. We then ask how, in practice, each property could be rebutted.
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Allen N. Berger and Timothy H. Hannan
Prior research on the structure‐performance relationship has not investigated all of the relevant relationships among market structure, profits, prices, and explicitly calculated…
Abstract
Prior research on the structure‐performance relationship has not investigated all of the relevant relationships among market structure, profits, prices, and explicitly calculated measures of firm efficiency. This paper replicates the four approaches in the literature, adds several innovations, and applies the analysis to banking data. We find more support for the structure‐conduct‐performance hypothesis than for the relative‐market‐power and efficient‐structure hypotheses, although the data are not fully consistent with any of these theories. We also find support for Hick's quiet‐life hypothesis, which implies that firms with market power adhere less rigorously to efficiency maximization. J.E.L. Classification Numbers G21, G28, L41, L89 The opinions expressed do not necessarily reflect those of the Board of Governors or its staff. The authors thank Dean Amel, Jim Berkovec, Myron Kwast, Nellie Liang, LenNakamura, Steve Rhoades, and participants in the meeting of the Federal Reserve System Committee on Financial Structure and Regulation for helpful comments, and Ken Cavalluzzo, Jalal Akhavein, John Leusner, and Seth Bonime for outstanding research assistance.
Monsurat Ayojimi Salami and Razali Haron
The purpose of this paper is to examine the pricing efficiency of the Malaysian crude palm oil (CPO) market before and after the structural break. This study uses the daily…
Abstract
Purpose
The purpose of this paper is to examine the pricing efficiency of the Malaysian crude palm oil (CPO) market before and after the structural break. This study uses the daily closing price of CPO and CPO futures (CPO-F) for the period ranging from June 2009 to August 2016 while taking structural breaks into account.
Design/methodology/approach
In this study, symmetric and asymmetric long-run relationship model are employed, such as the Johansen cointegration, VECM, TAR and M-TAR models, to examine the impact of structural breaks on the pricing efficiency of the Malaysian CPO market.
Findings
This finding establish that Malaysian CPO price is efficient before and after the structural break. The consistent efficiency of the Malaysian CPO market supports the trading of the CPO-F in Globex and the use of Malaysian CPO pricing as the reference price. This study establishes that a structural break in the Malaysian CPO price series does not affect the pricing efficiency of the market.
Research limitations/implications
This study shows that using Malaysian CPO price as a reference price is sustainable even in the event of a structural break. Therefore, market participants in the Malaysian CPO market have less to worry about the CPO price as it supports the weak form of efficiency. Price deviation in the short run may not lead to arbitrage profit as transaction cost may not be covered.
Practical implications
This study implies that if there is distortion in the price due to shocks, both manufacturers and producers need to hedge their positions in the futures market (subject to their positions in the underlying market). By entering into the futures market, pricing is locked in advance; hence, price risk is eliminated. Such a distortion could also affect the efficiency of the CPO price, therefore this study also addresses the issue of efficiency of the local CPO market.
Originality/value
Previous studies on Malaysian CPO pricing efficiency did not take the effect of structural break into consideration, making it difficult for these studies to show consistency in the efficiency of the Malaysian CPO market.
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Arne Höltl, Matthias Heinrichs and Cathy Macharis
This study analyses the effect of fuel efficiency increase on travel demand in the city of Berlin. Vehicle technologies such as advanced driver assistance systems can help drivers…
Abstract
Purpose
This study analyses the effect of fuel efficiency increase on travel demand in the city of Berlin. Vehicle technologies such as advanced driver assistance systems can help drivers to save fuel and thus lower exhaust emissions on a network level. In order to obtain high political endorsement among different stakeholders, the analysis of such effects which have an impact on overall fuel and emission savings are highly relevant. Recent testing of so called advanced driver assistance systems showed their ability to reduce fuel consumption and lower traffic emissions by giving driving recommendations to drivers.
Methodology/approach
Two effects on driving were simulated using a travel demand model: the increase in fuel prices which will take place in the coming years and a possible increase in vehicle fuel efficiency. Comparing these scenarios allowed us to calculate the effect of price change and the rebound effect of fuel efficiency gains using standard methods for transport elasticities. The simulation was run with the travel demand model TAPAS and the city of Berlin was the network used as a case study.
Findings
As fuel prices increase over time, driving tends to decrease. Driving increases, however, if vehicles become more fuel efficient and the result is the observed rebound effect. On a city network level, this also translates to lower emission savings than expected from the vehicle fuel efficiency gains. The rebound effect which we estimated matches similar findings in the literature, specifically in terms of their magnitude.
Practical implications
We used a simulation to compare scenarios of city travel demand. The result allowed us to estimate changes to the desired variables of fuel efficiency and fuel prices. For those interested in the effects of vehicle efficiency gains on city level these results are highly recommended for consideration.
Originality/value
The proposed framework for analysing rebound effects helped to assess the impacts of energy efficiency technologies on a city level.
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Hakan Aygoren and Emrah Balkan
The aim of this study is to investigate the role of efficiency in capital asset pricing. The paper explores the impact of a four-factor model that involves an efficiency factor on…
Abstract
Purpose
The aim of this study is to investigate the role of efficiency in capital asset pricing. The paper explores the impact of a four-factor model that involves an efficiency factor on the returns of Nasdaq technology firms.
Design/methodology/approach
The paper relies on data of 147 firms from July 2007 to June 2017 to examine the impact of efficiency on stock returns. The performances of the capital asset pricing model (CAPM), Fama–French three-factor model and the proposed four-factor model are evaluated based on the time series regression method. The parameters such as the GRS F-statistic and adjusted R² are used to compare the relative performances of all models.
Findings
The results show that all factors of the models are found to be valid in asset pricing. Also, the paper provides evidence that the explanatory power of the proposed four-factor model outperforms the explanatory power of the CAPM and Fama–French three-factor model.
Originality/value
Unlike most asset pricing studies, this paper presents a new asset pricing model by adding the efficiency factor to the Fama–French three-factor model. It is documented that the efficiency factor increases the predictive ability of stock returns. Evidence implies that investors consider efficiency as one of the main factors in pricing their assets.
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The purpose of this paper is to investigate the impacts of equity incentive on stock pricing efficiency, as well as the institutional investors’ response to equity incentive and…
Abstract
Purpose
The purpose of this paper is to investigate the impacts of equity incentive on stock pricing efficiency, as well as the institutional investors’ response to equity incentive and its role in stock pricing efficiency.
Design/methodology/approach
Using a sample of 1,842 companies that announce implementing equity incentive schemes during the period 2009-2018, the authors compare the pricing efficiency between the firms with equity incentive and those without equity incentive, and companies that implement equity incentive before and after the implementation of equity incentive by using multiple regression and propensity score matching -DID (difference in difference) method. In addition, the multiple regression model is built to test the response of institutional investors to equity incentive and its role in the efficiency of stock pricing.
Findings
The empirical results indicate that a company’s stock price is influenced more by firm-specific information than systematic factors after it announces a stock-based compensation scheme. Institutional investors respond positively to companies that implement equity incentives. Among the companies that have implement equity incentive, the higher the shareholding ratio of institutional investors, the higher the efficiency of stock pricing.
Originality/value
The authors innovatively establish a connection between the implementation of equity incentive and the operation of stock market. The results imply that besides alleviating the agency problem, equity incentives can also improve the efficiency of stock pricing, which provide empirical evidence to support the positive effect of equity incentive.
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