Magnitudes of Market Inefficiency: Theory and Application |
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| Institution: | 1. Faculty of Science and Engineering, Hosei University, Japan;2. Graduate School of Economics, Tohoku University, Japan;3. School of Business, Aoyama Gakuin University, Japan;1. Memorial Sloan-Kettering Cancer Center, New York, NY;2. Brigham and Women''s Hospital, Boston, MA;3. University of Texas and MD Anderson Cancer Center, Houston, TX;4. New York University Medical Center, New York, NY;5. The University of Chicago, Chicago, IL;6. Penn Presbyterian Medical Center, Philadelphia, PA;7. University of Toronto, Toronto, ON, Canada;8. Cancer Research and Biostatistics, Seattle, WA;1. Department of Surgery, Memorial Sloan Kettering Cancer Center, New York, New York;2. Department of Radiology, Brigham and Women’s Hospital, Boston, Massachusetts;3. Cancer Research and Biostatistics, Seattle, Washington;4. Department of Radiology, New York University School of Medicine, New York, New York;5. Department of Surgery, University of Texas MD Anderson Cancer Center, Houston, Texas;6. Department of Surgery, New York University School of Medicine and Comprehensive Cancer Center, New York, New York;7. Department of Medicine, The University of Chicago, Chicago, Illinois;8. Department of Surgery, Toronto General Hospital and Princess Margaret Hospital, Toronto, Ontario, Canada;9. Department of Surgery, University of Pennsylvania, Philadelphia, Pennsylvania;1. Japan Society for the Promotion of Science (JSPS) Postdoctoral Fellow, Gakushuin University, 1-5-1, Mejiro, Toshima-ku, Tokyo 171-8588, Japan;2. Institute of Social Science, the University of Tokyo, 7-3-1, Hongo, Bunkyo-ku, Tokyo 113-0033, Japan;3. JSPS Postdoctoral Fellow, Institute of Social and Economic Research, Osaka University, 6-1, Mihogaoka, Ibaraki, Osaka 567-0047, Japan;1. Department of Clinical Pharmacology and Toxicology, Charité–Universitätsmedizin Berlin, Berlin, Germany;2. Department of Medical Sociology and Rehabilitation Science, Charité–Universitätsmedizin Berlin, Berlin, Germany;1. College of Earth Sciences, Jilin University, Changchun 130061, Jilin, China;2. Applied Technology College, Jilin University, Changchun 130012, China;3. Key Laboratory of Mineral Resources Evaluation in Northeast Asia, Ministry of Natural Resources of the People’s Republic of China, Changchun 130026, Jilin, China;4. Inner Mongolia Chifeng Geology and Mineral Resources Exploration Development Institute, Chifeng 024000, Inner Mongolia, China;1. Jilin Institute of Chemical Technology, Jilin City, Jilin 132022, PR China;2. State Key Laboratory of Inorganic Synthesis and Preparative Chemistry, College of Chemistry, Jilin University, Changchun 130012, PR China;3. Key Laboratory of Chemical Synthesis and Environmental Pollution Control-Remediation Technology, Xingyi Normal University for Nationalities, Xingyi, Guizhou 562400, PR China |
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| Abstract: | This paper conceptually distinguishes the intrinsic value from the fundamental value, though most of previous literatures have implicitly deemed them to be identical. The distinction of the two concepts clarifies the relation between the market efficiency in the sense of Fama (1970) and the over- (under-) valuation for evaluating the stock market. Then, this study proposes an alternative measure of ‘magnitude of market inefficiency’ for accessing the trading systems and applies this measure to the nine stock markets during the two sub-periods. The trading systems of three markets improve in the second period, while the others become worse. This study also proposes an alternative measure of a fundamental value of stock price based on a macroeconomic model and makes clear the relation of the over- (under-) valuation of the market to the magnitudes of market inefficiency. Thus, the application to the Japanese stock market indicates that the magnitudes of inefficiency are small compared with the net over- (under-) valuations. It is because the magnitude of inefficiency is stationary while the net over- (under-) valuation is non-stationary. |
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| Keywords: | magnitude of market inefficiency intrinsic value fundamental value market price over-(under-)valuation |
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