Testing weak form efficiency on the Toronto Stock Exchange

In order to test for weak form efficiency in the market a vast pool of individual stocks must be analyzed rather than a stock market index. In this paper, a model-based bootstrap is used to generate a series of simulated trials and a modified chart pattern recognition algorithm is applied to all stocks listed on the Toronto Stock Exchange (TSX). The number of patterns detected in the original price series is compared with the number of patterns found in the simulated series. By simulating the price path specific time dependencies present in real data are eliminated, making price changes purely random. Patterns, if consistently identified, carry information which adds value to the investment process, however, this informativeness does not guarantee profitability. Conclusions are drawn on the relative efficiency of some sectors of the economy. Although the null hypothesis of weak form efficiency on the TSX cannot be rejected, some sectors of the Canadian economy appear to be less efficient than others. In addition, pattern frequencies appear to be negatively dependent on the two moments of return distributions, variance and kurtosis.     

The statistical evolution of prices on the Istanbul stock exchange

This study documents the statistical properties of the stock returns on the Istanbul Stock Exchange (ISE) for the January 1988 to December 1999 period and tries to assess the evolution of the underlying stochastic structure over this time period. It also investigates empirically the relative efficiency of the ISE to test whether the rapid development of this market over the last decade caused it to become a relatively more efficient market. This is accomplished through a number of parametric and non-parametric tests of the random walk hypothesis using daily, weekly and monthly observations of the value-weighted ISE-100 index series. The emphasis is more on the evolution of the price process than on static tests of a random walk model as such. The findings indicate that the price mechanism in the ISE has evolved into a more informationally efficient process in little more than a decade of existence.     

The effect of settlement regimes on trading cost and market efficiency: evidence from the National Stock Exchange

Using data from 65 of the most actively traded stocks from the National Stock Exchange of India we study the relationship between impact cost and three indicators of market efficiency under different settlement regimes. Our data is uniquely suited for this study because it encompasses a transition by the National Stock Exchange of India from fixed to rolling settlement. As a by-product of our study we are able to examine inefficiencies related to the day of the week on which trades are conducted for different settlement regimes. In summary our data reveals that rolling settlement reduces aggregate impact costs, leading to greater market efficiency. Employing a fixed effects model we show that impact cost has a stronger relationship to our indicators of market efficiency under rolling settlement. However, we find evidence of two structural inefficiencies related to the day-of-the-week on which trades are conducted: 1) under rolling settlement, trades conducted earlier in the week (and settled by Thursday) have lower impact costs, and 2) there is an impact cost premium for Friday trades.     

Interdependence and Volatility Spillovers Under Market Liberalization: The Case of Istanbul Stock Exchange

This paper analyzes stock returns and volatility relations between the Istanbul Stock Exchange (ISE) and the global market as represented by stock markets in the US, the UK, Japan and Germany. Results from monthly data and multivariate cointegration tests suggest that the ISE became significantly integrated in the global market only in the period following market liberalization in late 1989. We also find evidence based on GARCH estimations that capital liberalization actually mitigated, rather than intensified, volatility in the ISE. Our results further suggest that the Asian crisis in mid‐1997 and the consequent Russian economic meltdown in mid‐1998 are partly responsible for the recent excessive volatility in the Turkish market. The results also identify the US and the UK markets as dominate sources of volatility spillovers for the ISE, even in the period following the Asian‐Russian crises. Consequently, it appears that the two matured markets of the US and the UK shoulder significant responsibility for the stability and financial health of smaller emerging markets like the ISE.     

对加快推进国内黄金市场发展的思考

本文在回顾部分国家黄金市场管理经验及我国黄金管理体制历史沿革的基础上,以产金大省山东为例,从制度建设、监管协调、产业发展规划与管理及黄金投资产品开发与投资者教育等方面,系统地分析讨论了目前存在的一些问题,并对推进国内黄金市场发展提出了建议。     

Random walk and efficiency tests in the Asia-Pacific foreign exchange markets: Evidence from the post-Asian currency crisis data

This paper empirically tests the random walk and efficiency hypothesis for 12 Asia-Pacific foreign exchange markets. The hypothesis is tested using individual as well as panel unit root tests and two variance-ratio tests. The study covers the high (daily) and medium (weekly) frequency post-Asian crisis spot exchange rate data from January 1998 to July 2007. The inferential outcomes do not differ substantially between the unit root tests and the variance-ratio tests when using daily data but differ significantly when using weekly data. With the daily data, both types of unit root tests identify unit root components for all the series and two variance-ratio tests provide the evidence of martingale behavior for majority of the exchange rates tested. With the weekly data, panel unit root tests identify unit root component for the exchange rates and, the unit root tests on a single series basis identify unit root component for 10 foreign exchange markets. However, the variance-ratio tests reject the martingale null for the majority of the exchange rates when using weekly data.     

Differentiated regulation: the case of charities

The increasing number and influence of charities in the economy, evidence of mismanagement and the need for information for policymaking are all reasons for establishing charity regulators. Public interest and public choice theories explain charity regulation which aims to increase public trust and confidence in charities (and thus increase voluntarism and philanthropy) and to limit tax benefits to specific organisations and donors. Nevertheless, regulation is resource intensive, and growing pressure on government budgets requires efficiencies to be found. This study proposes regulation differentiated according to charities' main resource providers, to reduce costs and focus regulatory effort, and provides a feasible segmentation.     

The pricing of exchange rate risk and stock market segmentation: The Canadian case

Empirical evidence by Eun and Resnick (1988), among others, has demonstrated the significance of exchange rate risk in the international asset allocation and they have noted that the risk is nondiversifiable. Yet, exchange rate risk was found by Jorion (1991) to be a risk factor that is not priced in the U.S. stock market. This study reexamines such counterintuitive results using data from the Toronto Stock Exchange. The evidence here weakly supports the pricing of the exchange rate risk. Further, the sample period in this study coincides with Jorion's to ensure that both studies examine the pricing of the exchange rate risk in the same global economic environment. The significant pricing of exchange rate risk in Canada and the insignificant pricing in the U.S. imply the possibility of market segmentation.     

Stock exchange demutualization,self-listing and performance: The case of the Australian Stock Exchange

This paper examines the effects of the recent spate of financial exchange mutual-to-stock conversion phenomenon on the performance of listed exchanges and the quality of the stock market using the Australian Stock Exchange (ASX) as a case study. We find that the ASX stock significantly outperformed the stock index and the control group on a market-adjusted return basis. The stock market performance is driven by strong operating performance. The profitability ratios of the ASX have significantly improved in the five years following the demutualization and self-listing. The performance improvements remain significant even after controlling for growth in the Australian economy. From a market quality perspective, we document evidence of increased trading activity by foreign investors after ASX’s demutualization and self-listing. Interestingly, we also find that bid-ask spreads of the stock market have narrowed in the post-conversion period. In particular, small-cap firms have become more liquid. The results show that stock exchange conversion from mutual to publicly traded exchange is not only value enhancing for the exchange and its shareholders, but it is also beneficial for the stock market as a whole.     

Tests of the efficiency of the U.S. rights offering market: An option pricing approach

The efficiency of the U.S. market for stock purchase rights is empirically analyzed in an options framework, in which prices of rights, given the prices of underlying stock, are examined with regard to the possibilities of actually earning above-normal profits, considering the risk taken. Two neutral hedging tests for market efficiency, along with a simple buy-and-exercise trading strategy, are applied to daily traded rights data. Results from ex-post hedging tests suggest that the trading strategy based on the rights valuation model is able to differentiate between overpriced and underpriced rights so as to generate substantial book profits. The positive ex-ante hedge return, found to exist empirically, is completely eliminated once transaction costs are introduced, lending support for the efficient U.S. rights offering market on an after-transaction cost basis.     

Signalling with official interest rates: the case of the German discount and lombard rate

A major characteristic of the operating procedure of the European Central Bank (ECB) is its reliance on standing facilities. It is intended that the official rates on those facilities also serve the function of signalling. The case of Germany, where the Bundesbank followed a similar signalling strategy, is analysed. In particular the paper investigates whether announcements of official interest rates provide information not already contained in other policy measures and whether the resulting revisions of expectations are efficient. Significant differences are found between signalling in the case of increasing and decreasing interest rates.     

Business models in the search for efficiency: the case of public financial intermediaries

This paper presents an optimal business model configuration for public financial intermediaries (PFIs). Using nonparametric techniques on Italian public financial corporations, the most efficient business models combined asset diversification and income specialization. These business models were unaffected by external financial turmoil, due to weak connections between PFIs and the traditional financial circuit; and public–private ownership is more efficient than purely public ownership, regardless of the business model adopted.     

The effects of changes in index composition on stock prices and volume: Evidence from the Istanbul stock exchange

Previous evidence has shown that stocks included in (excluded from) an index exhibit significant positive (negative) abnormal returns on the announcement day, and that trading volume is affected by the event. This study examines the price and volume effects on stocks associated with the changes in the value-weighted index composition of two indices, of the ISE, where the index funds and index derivatives do not exist. Consistent with previous evidence, stocks included in (excluded from) the index tend to generate positive (negative) abnormal returns in ISE. Volume and volume volatility are also significantly affected. Our results seem to support the hypotheses of price-pressure, imperfect substitute and attention due to the lack of index-funds and derivatives market in Turkey.     

The Effect of Market Structure on the Incentives to Quote Aggressively: An Empirical Study of Nasdaq Market Makers

We use data on Nasdaq stocks to study arguments that preferencing reduces incentives to quote competitively. We examine a market maker's volume as a function of various measures of quoting aggressiveness. We find that more aggressive quoting does indeed result in more business. We also examine the relation between volume and quote aggressiveness as a function of the competitiveness. We find that in less (more) competitive markets, increased quote aggressiveness has a smaller (larger) impact on market share. We argue that preferencing arrangements could be more harmful to public investors in markets where competition is weak.     

The Effects of Uncertainty on Market Prices: Evidence from Coaching Changes in the NBA

Abstract:  This study examines the effects of uncertainty on market prices. Specifically, we use the National Basketball Association betting market to examine whether uncertainty resulting from midseason coaching changes affects the ability of bettors to accurately set betting lines. We find that uncertainty amid midseason coaching changes results in less accurate pricing, as evidenced by higher volatility and greater overall inaccuracy in betting lines. We also find that uncertainty regarding the ability of the replacement coach and/or his strategies results in less accurate pricing, again evidenced by higher volatility and greater overall inaccuracy in betting lines.     

The Evolution of Market Efficiency: 103 Years Daily Data of the Dow

Autocorrelation in daily returns of the Dow 30 Index fluctuates significantly over time and reveals a declining trend after World War II. The relation between autocorrelation and volatility is negative and nonlinear. The relation between autocorrelation and volume is also negative and nonlinear. Returns exhibit positive autocorrelation during years with higher autocorrelation, and negative autocorrelation during years with lower autocorrelation. Positive autocorrelation appears more frequently during periods of low volatility, while negative autocorrelation appears more frequently during periods of high volatility. Current period's autocorrelation is related to previous period's autocorrelation and to both the previous and the current period's volatility and rate of return, which implies that investors incorporate previous period's pattern of market behavior into their trading strategy.     

A model of medium term exchange rate forecast in an open economy The case of the mexican peso

Keynes (1930) and Samuelson (1965) proposals open the possibility of matching predictability and efficiency, as evidenced by the seminal study by Fisher (1930). Recent findings suggest that the foreign exchange market gradually incorporates relevant information allowing the formation of prices in a rational manner but not randomly. Models of exchange rate by term based on asset valuation suggest that the inclusion of risk in the spot rate increases the degree of predictability. The results show that after incorporating an accurate measure of risk, predictability of medium term foreign exchange rate increases.     

Retail investors exonerated: the case of the January effect

We dispel the belief that the January effect is due to retail investor trading. Previous studies suggest that retail investors, affected by behavioural biases and disproportionally invested in small capitalization stocks, are the source of the January effect. Furthermore, the literature regards retail investor trading and the tax‐loss selling hypothesis as essentially the same explanation. We separate tax implications and market capitalization to show that retail traders are not the cause of the January effect. Our study is an important direct test of whether retail trading causes market anomalies.     

The economic impact of a transient hazard on property values: The 1988 Pepcon explosion in Henderson,Nevada

This article investigates the effect of the May 1988 explosion of a chemical plant in Henderson, Nevada on residential property values (1) before the explosion (anticipation), (2) between the time of the explosion and an announcement of relocation, and (3) subsequent to an announcement in July 1988 that the plant would be rebuilt 100 miles away in Cedar City, Utah. This article uses the conventional hedonic model wherein the real prices of residential houses are related to the characteristics of the property (age, size, and amenities); the timing of the sale; and distance from the site of the explosion, rounded to the nearest mile. A quadratic specification of the model showed that the model was sensitive to the mean distance from the hazard. In a sample of properties throughout the Las Vegas Valley, property values decreased with distance from the explosion, indicating the presence of other hazards. The quadratic specification was stable only for properties within six miles of the explosion site, which included the communities of old Henderson (to the east) and the master planned community of Green Valley (to the west). A discontinuous specification of the model, in which distance was measured by a set of dummy variables (i.e., within two miles, within three miles, etc.) proved to be much more stable. Property within two miles of the hazard were depressed both before and after the explosion, although after the relocation announcement, property values rebounded to reflect the reduction in the number of hazardous plants. This article lends weight to the accumulating body of evidence that real estate markets do behave efficiently.     

The Effects of Trading Methods on Volatility and Liquidity: Evidence from the Taiwan Stock Exchange

This study contrasts the call and continuous auction methods using Taiwan Stock Exchange data. Volatility under the call market method is approximately one-half of that under the continuous auction method. The call market method is more effective in reducing the volatility of high-volume stocks than low-volume stocks. This contradicts conventional wisdom which suggests that the call market method is superior for thinly traded stocks, while the continuous auction method is preferred for heavily traded stocks. The call market method does not impair liquidity and price discovery. The call market appears more efficient than in the continuous auction market.