weak form market efficiency in developed and emerging markets after 2007
DESCRIPTION
the ppt of theTRANSCRIPT
WEAK FORM MARKET
EFFICIENCY:
(EVIDENCE FROM EMERGING &
DEVELOPED WORLD)
Technical and fundamental analysis cannot predict the future prices of securities (Malkiel, 2003).
WEAK FORM MARKET EFFICIENCY
Introduction
Capital market has function of channelizing savings into investment
(Sudhahar and Raja, 2010)
Securities in the market are to be appropriately
priced
In M.E-Stock prices fully
reflect all the available
information
In M.E old information can't be used to prefigure future price movements (Vaidyanathan and Gali, 1994)
• In efficient capital markets, the role of regulatory authorities is limited as securities are accurately priced
• In an inefficient market, an investor will be better off trying to spot winners and losers in the market (Rutterford, 1993)
WEAK FORM MARKET EFFICIENCY
FAMA proposed three types of stock market efficiency
Weak Form Efficiency
Semi Strong Form Efficiency
Strong Form Efficiency
All assets will be correctly priced in the market offering optimal reward to risk. (Gupta and Basu, 2007)
Literature Review - 32 Researches But With Contradictory ResultData Used
Time period 2007-10 of developed (uk, usa & Germany) & Emerging Markets (BRICS)
Collection of Daily prices
Calculation of daily Return
Proxies
WEAK FORM MARKET EFFICIENCY
Markets Under Consideration
BOVESPA of BrazilSensex of India,
Shanghai Index of China,KOSPI Index of South Korea,
RTS of Russia,
NASDAQ Composite of US,DAX of Germany and
FTSE 100 of UK
Methodology
Unit root testRandom Walk Hypothesis
Stationarity
First difference
H0 p = 0H1 p < 0 The acceptance of null hypothesis, shows non- stationary
The rejection of null hypothesis shows stationary
WEAK FORM MARKET EFFICIENCY
GARCH in Finance• Financial returns series often clearly exhibit
conditional heteroskedasticity (volatility clustering)
• Goal of GARCH models is to provide a volatility measure
Log Returns of S&P 500: Jan 02 - Dec 04
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
Conditional heteroskedasticity:
Future values cannot be predicted
Auto Correlation
Volatility Cluster
WEAK FORM MARKET EFFICIENCY
Generalized Auto Regressive Conditional Heteroskedasticity (GARCH) Process
null hypothesis of unit root (non-stationarity)
is rejected, as the value of test statistic is
more negative than the critical value in
each country
value of (a +b ) is very close to 1 for all capital
markets, suggesting thereby a high
persistence of volatility clusters
Reason
• most recent global financial recession• underlying credit and confident crises
WEAK FORM MARKET EFFICIENCY
Empirical Analysis - Results
Issues with Inefficiency
Outperforming the market
Deteriorating the gross savings
Low true values may give a lot of capital,
High true values may find it difficult to raise capital
Funds are not channeled where they are most useful
WEAK FORM MARKET EFFICIENCY
Findings Motivate the Policy Makers to take steps, to
regulate the information properly impetus for successful financial innovation by
financial firms thereby making the market move towards efficiency in the long run.
WEAK FORM MARKET EFFICIENCY