Efficient Markets Hypothesis and the Emerging Capital Market in Sri Lanka: Evidence from the Colombo Stock Exchange – A Note

The behaviour of stock prices on the Colombo Stock Exchange (CSE) is examined with a view to determine its consistency with the weak form of the Efficient Markets Hypothesis (EMH). Runs, Autocorrelation and Cointegration tests are applied to daily, weekly and monthly CSE index data for the period of January 1991–November 1996. Results of Runs, Correlation and Cointegration tests overwhelmingly reject the serial independence hypothesis, leading to the conclusion that the behaviour of stock prices in the Colombo Stock Exchange is not consistent with the weak form of the Efficient Markets Hypothesis. Tests of the-day-of-the-week-effect, however, show that there is no evidence of such a phenomenon on the Colombo Stock Exchange stock prices. Results of the tests of the-month-of-the-year-effect lead to the conclusion that CSE prices do not display any month-specific behaviour.     

Economic analysis of the impact of adopting herd health control programs on smallholder dairy farms in Central Thailand

The economic impact of adopting herd health programs for mastitis and reproduction by small-scale dairy producers of Central Thailand was assessed using a policy analysis matrix (PAM). Following a reduction in the incidence of bovine disease on adopter farms, an increase in private net profits is observed. More importantly the social costs of supporting dairy farmers is reduced; the PAM effective protection coefficient was reduced by 35% for mastitis program adopters and by 44% for reproductive program adopters, indicating improved social efficiency of dairy policy. Other indicators of efficiency and policy implications are discussed.     

Asymptotically optimal estimation of smooth functionals for interval censoring, part 1

Estimation in the interval censoring model is considered. A class of smooth functionals is introduced, of which the mean is an example. The asymptotic information lower bound for such functionals can be represented as an inner product of two functions. In case 1, i.e. one observation time per unobservable event time, both functions can be given explicitly. We mainly consider case 2, with two observation times for each unobservable event time, in the situation that the observation times can not become arbitrarily close to each other. For case 2, one of the functions in the inner product can only be given implicitly as solution to a Fredholm integral equation. We study properties of this solution and, in a sequel to this paper, prove that the nonparametric maximum likelihood estimator of the functional asymptotically reaches the information lower bound.     

Globalization frustrated: The case of white goods

This paper challenges the common view that mature industries are always ripe for global strategies. Based on data from the European Domestic Appliance industry, this paper shows how changing economic conditions can diminish the value of global strategies. Critical in these shifts were simultaneous rises in demand for variety (that eroded the benefits of scale and continental market share) and decreases in manufacturing scale (that permitted new supply options), which reduced the extent of the strategic market to national dimensions. They added complexity that decreased the profitability of the global players and increased that of national strategies. The fluctuating fortunes of leading firms are shown to have been caused primarily by choices of strategy, not by national factor costs.     

Are Housing Price Cycles Driven by Irrational Expectations?

This paper investigates the extent to which condominium apartment prices are set in an efficient asset market. Unlike previous work that focuses on the time-series properties of measures of excess returns, the analysis is framed in terms of the changes in observable house prices over time. More precisely, the paper develops and applies a test of the joint null hypothesis of rational expectations, perfect markets, and no risk premium in the Vancouver condominium apartment market. The empirical results provide significant evidence against the joint null hypothesis. On average, ex post house price changes move in a direction opposite to their rational expectation. This approach offers a methodological advantage over the standard efficiency literature and is shown to provide a more powerful test of market efficiency than conventional return regressions. Another contribution of the paper is to characterize the time-series properties of deviations of condominium prices from those predicted by the risk-neutral rational expectations model, using cointegration and random coefficients techniques. Deviations in house price changes from their (risk-neutral) rational expectations are time varying, stationary, and related to the stage of the real estate price cycle.     

From T-Bills to Stocks: Seasonal Anomalies Revisited

This paper employed eleven data series which consist of stocks, bonds, bills, equity premiums, term premiums, and various default premiums to investigate whether January seasonality reported in existing literature is robust across different states of the economy as this has important trading implications. For the periods 1926–1990, small stocks, small stock premiums, low grade bonds, and default premiums (spread between high grade, low grade and government bonds) reveal January seasonality and that the seasonality is robust across different states of the economy except for low grade bond returns and default premiums. January seasonality for low grade bond returns and low grade bond default premiums are primarily driven by results found during periods of economic expansion. Overall, January seasonality is more evident during the economic expansion periods although the magnitude of default premiums is larger during periods of economic contraction. Furthermore, prior findings of strong summer equity returns are primarily driven by the results found during the periods of economic contraction. It is also found that equity returns are generally higher during periods of economic expansion.     

On the Role of Weight Restrictions in Data Envelopment Analysis

This paper examines the role that weight restrictions play in Data Envelopment Analysis (DEA). It is argued that the decision to include a factor (input or output) in a DEA model represents an implicit judgement that the factor has a non-trivial weight. It therefore seems perverse to allow DEA to assign a trivial weight to that factor in assessing the efficiency of a unit. There is therefore a strong case for imposing restrictions on factor weights. However, many existing methods of weight restriction are in practice unwieldy. This paper proposes an alternative approach we term contingent weight restriction which is both practical and intellectually consistent with the DEA philosophy. The paper explores the implications of alternative methods of weight restriction using simulated data from a well known production process.     

The Performance of Actively Managed International Mutual Funds

International mutual funds allow individual investors to diversify abroad at a reasonable cost. This paper tests whether international funds that actively engage in country and security selection outperform passive global benchmarks. We apply a mean-variance efficiency test that incorporates the practical prohibition against short sales of open-end mutual funds. Our tests reject the efficiency of the world equity market portfolio over the sample period, and our funds as a group outperform the inefficient world index. However, we find no evidence of security selectivity ability using a 12-country benchmark. We do find that active international funds provide global diversification benefits. Tests using the Positive Period Weight (PPW) measure of Grinblatt and Titman (1989), which is robust to nonlinearity in fund and benchmark returns, yield similar results.     

On efficiency of the ratio estimator

Summary The exact mean square error for the ratio estimator of a finite population total based on simple random sampling without replacement is shown to have an expected value less than that of the variance of the ratio estimator based on Midzuno’s scheme, under a usual super-population model.     

Measuring Hospital Performance in the Presence of Quasi-Fixed Inputs: An Analysis of Québec Hospitals

This research proposes an approach to measure hospital performance based on a generalization of Banker and Morey (1986) and Førsund (1996). This approach considers quasi-fixed inputs explicitly, calculates their implicit cost, and quantifies returns to scale. The performance measure is decomposed into allocative and technical inefficiencies. Based on a very complete data set of Québec hospitals, we find that significant inefficiencies of up to 17% ($700 CAN million) could have been saved through improved performance. Postestimation analyses that include qualitative measures of care suggest that differences in performance are attributable to differences in management or unobservable quality of care rather than patient case mix.