市場效率

Discussion of the concept of market efficiency and empirical approaches to test for it-市場效率和實證方法測試的概

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04-10, 2014

Discussion of the concept of market efficiency and empirical approaches to test for it
市場效率和實證方法測試的概念的探討

This essay will have a brief discussion of the concept of market efficiency and empirical approaches to test for the market efficient, firstly this essay will discuss the source of efficient-market hypothesis and then continue to discuss the three kinds of efficient markets which are weak-form efficient market ,semi-strong-form efficient market ,and strong-form efficient market. Secondly this essay has a review and discussion of the empirical approaches to test for the market efficiency .Finally there is a conclusion and a discussion about the validity of the EMH hypothesis.
本文將簡要討論了市場效率的實證方法和概念，對市場有效的測試，首先，本文將討論有效市場假說的來源，然后繼續討論三種有效市場是弱勢有效市場，半強勢有效市場和強勢有效市場。其次，本文綜述和實證的方法探討了市場效率的測試。最后是結論部分，對有效市場假說的假設的有效性進行探討。

I　A review of market efficiency 市場效率的檢驗

In finance,the efficient-market hypothesis (EMH) asserts that financial markets are informationally efficient. That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information publicly available at the time the investment is made.

There are three major versions of the hypothesis: "weak", "semi-strong", and "strong":

one can define a weak-form efficient market in the following sense:consider the arrival in the market of a new piece of information concerning the value of a security.a weakly efficient market is a market in which it may take time to evaluate this information with regard to its implications for the value of the security.once this evaluation is complete,however ,the price of the security immediately adjusts (in an unbiased fashion)to the new value implied by the information.in such a weakly effcient market,the past price series of a security will contain no information not already impounder in the current price.[i]

在金融領域，有效市場假說（EMH）認為，金融市場就是信息效率。這是一個始終不能達到的收益，在市場平均收益超過風險調整的基礎上，給出了信息公開的同時做出了投資。

有三個主要版本的假設：“弱”，“半強”，“強”：

你可以在以下意義上定義一個弱勢有效市場：考慮在一個新的信息有關的證券價值市場的到來。弱勢有效市場是一個可能需要一段時間來考慮其安全性.一旦這個評價是完整的，但評價這一信息的價值意義，證券的價格立即調整（在一個無偏的方式）為新值的信息，這樣的弱有效市場的暗示，一個安全的過去的價格系列將不包含目前價格的信息。[i]#p#分頁標題#e#

While, in semi-strong-form effcient market, all publicly available information are assumed to be reflected in product prices, not only include product prices, but also related financial reports and product information, economic conditions and other publicly available information circular of the value of the product information, published in the macroeconomic situation and policy information. Semi-strong-form efficiency implies that neither fundamental analysis nor technical analysis techniques will be able to reliably produce excess returns.

And in Strong-form efficienct market , the price of securities reflects not only public information, but also reflects the inside information. As an investor with inside information can not earn excess return.If there are various barriers to make private information become public, as with insider trading laws, then strong-form efficiency is impossible, only if in the case where the laws were universally ignored. In order to test for strong-form efficiency, the market needs to exist where investors can not always earn excess returns over a long period of time. Even if some money managers are consistently observed to beat the market, no refutation even of strong-form efficiency follows: with hundreds of thousands of fund managers universally, even a normal distribution of returns (as efficiency predicts) should be expected to produce a few dozen star class performers.

In order to establish an effective market ,the following four conditions are necessay: (1) the effectiveness of information disclosure, which means that all of each financial product information can be released to the public in the market to the fully, truely and timely; (2)the validity of information from the public to be received ,namely ,that the information can be gained by investors who are concerned about the kinds financial products fully, accurately and timely; (3) Recipients of information on which to judge the effectiveness of access to information, that every concerns investors of the product can be made based on the information received consistent, reasonable and timely value judgments; (4) the effectiveness of implementation based on the information by the recipient,namely , investors conccerned on the products can determine what to invest on by their judgements accurately and timely.

II　Review of the approaches to test for market efficiency 市場效率的檢驗方法的審查

According to the traditional classification, depending on the theory of efficient market hypothesis, I will review and discuss the empirical approaches to test for the market efficency in three parts, namely, the test of weakly efficient market, semi-strong efficient market inspection and test of strong efficient market.

i　Test for Weakly-form efficient market

The main test for Weakly-form efficient market is to determine whether the price or return of the securities in the past can predict the future rate of the price or yield. Early on the stock market weakly efficiency test is mainly to determine whether the yield or price of securities are subject to the Random Walk Hypothesis (referred to RWH). There are momentum effect test and filter tests to test for weakly efficient market afterwards.#p#分頁標題#e#

1.Random walk test

Random walk process of security price movements in securities prices is irregular and unpredictable. Test of a securities price or return series are subject to random walk process usually takes the following two tests, namely, the correlation coefficient test and runs test.

①　The correlation coefficient test

Correlation coefficient test is a commonly used econometric test , but also is the standard sample data correlation method .This approach believes that the sample data is generated by a time series, by examining the sample data in a random variable with lag The correlation coefficient between the values to determine the correlation between the sample data.The smaller the correlation coefficient of the random variable and its lagged values , the stronger the weakly efficiency of the stock market.

②　Runs test

The test is to determine the existence of the time series autocorrelation by examining the law of the sign of time series. Run length of time series refers to the time series, the changes remain the same random variable sequence of symbols. Runs test is a qualitative test methods. Fama (1965) adopted a runs test to examine the effectiveness of the market, and he tested dozens of changes in stock prices of listed companies and the changes in the symbol interval, the market has been consistent with the conclusions of the weak form efficiency. But Osborne (1966) found in the examination of two changes in stock prices deviate from the random walk, and he also confirmed the information obtained by the expert agent, the possibility of excess profits. So Osborne (1966) did not support the conclusions of the market weakly efficiency.

2.Filter test

As investors's trading strategies can be profitable, it is essential to test the profitability of trading strategies.

Alexander (1961) is the first scholar to examine the trading strategies systematically.He mainly tested the effectiveness of "filter trading rule".Filter trading rules is that when stock prices rised by at least X%, then buying the stock and holding; when stock prices fell at least X%, then selling the stock, and short selling until the stock price rises to at least X%. Alexander, in the use of the United States'1897-1959 daily stock market closing price for the inspection, found that without considering transaction costs in the case, this filter has a significant trading strategy profitability.However, Mandelbrot (1963) thought that the test results of Alexander (1961) are biased, mainly due to the inaccuracy of the trading rules and stock offer being discrete, investors tend to sell for only slightly lower or slightly higher price to buy. In view of this, Alexander (1961) re-studied filter rules and found that the probability got a small profit.

3.Momentum effect test

Testing the effect of kinetic energy is mainly directed against a number of market anomalies. Kinetic effect is that the yield of the stock in the short term memory is in the positive autocorrelation, namely it is possible a good recent performance still performed well in the short term the stock , which means that the stock yields a strong correlation ( negativeness of weakly efficient market ), while investors can also use the correlation of short-term gains to build profitable investment strategy.#p#分頁標題#e#

Fama (1965) found the test of time series of stock returns has a weak correlation, because this correlation is weak, he did no think the market is invalid. The final results of his research is to support the random walk hypothesis . In addition, Fisher's (1966) study also found the weak correlation between the stock return time series . However, Moore (1962) found the reverse

evidence , he found negative correlation between them, as he tested the weekly return on the stock time series.

ii.Test for semi-strong-form efficient market

In the semi-strong- form efficient market tests, the most commonly used is the event study proposed by Fama, Fisher, Jensen and Roll (1969)[ii]. Event study is mainly to determine the speed of the stock price reflecting the new information in the market , thus to test the semi-strong-form stock market efficiency. Since the incident study does not consider the problem of joint hypothesis testing, while the research methods consider only the data within a short time, and that in a short time, the arrival of new information will lead to stock price fluctuations, and therefore only consider stocks inspection price volatility, regardless of excess returns. Conclusion of event study is that the stock price will be adjusted to the desired price the day the new information was announced, the speed of adjustment will depend on the effectiveness of the market. Basic conclusion of scholars' research on the empirical test is that a company's stock price reflects news released just now., the market is basically consistent with the hypothesis of semi-strong form efficiency. Information of impact on stock price volatility are stock splits, earnings announcements and the information and recommendations of securities analysts .

1.The impact of the release of Stock splits, dividends and other information on stock prices

The classic investment analysts suggest that investors choose the stock which will split for the stock split is a positive message, the release of such information led to the rise in stock price.Fama, Fisher, Jensen and Roll (1969) studied the reflecting speed of the stock market price to the company's announcing a stock split and dividend policies , their results showed that after the announcement of stock splits, stocks of dividend yield higher than the average stock price will rise, and the price of the stock whose dividends were expected to fall will go down .The test results confirmed the semi-strong-form efficient market hypothesis is correct.Scholes (Scholes, 1969) studied the impact on stock prices aftter the placement news release , and found in the placement of shares, the stock price had the downward trend, so this research was also consistent with semi-strong efficient market hypothesis. Bernard and Thomas (1990) studied dividend announcement's effects on stock prices, found that stock prices' reflecting the quarterly dividend can be forcasted by the front quarters t, this phenomenon has a further embodimentin ina small company.#p#分頁標題#e#

2.Earnings information on stock prices of public

Bell and Brown (Ball and Brown, 1968) first studied the announcement of earnings information on stock prices of the scholars , they analyzed the stock market's reflecting speed after the company released earnings information. In their study, stock prices can be predicted based on annual rate of return , only less than 10% -15% of the income information is not predicted by the market, which is supported by semi-strong-form efficient market hypothesis, because the results showed that public information can not be over-theoretical , public information is quickly reflected by the stock's price.

3.Securities analyst's recommendations and the proposals' impact on stock prices

Securities analysts are an important force which can not be ignored in valid pricing of the stock market can not , and its release of their information has a great influence to the price in the stock market and investors' decisions. For example, Bjerring, Lakonishok and Vermaelen (1983) studied the performance of the Canadian securities analysts, and found that the stocks' (recommended by securities analysts ) rate of return, net of transaction costs, are still higher than the overall market returns. Womack (1996) research suggests that stocks recommended by securities analysts have a significant price movement after the release of their reports, among which the selling stock recommended have more apparent price movement than the stocks to buy. Theoretically in semi-strong-form efficient market, securities analyst's recommendations and proposals adopted by customers will have an impact on stock prices, but in general the adoption of the recommendations of securities analysts will not get excess returns. One U.S. study showed that six months before being recommended a stock had the excess rate of return, but after the stock was recommended it would not have so good performance, the excess rate of return will be around a zero rate of return fluctuations, the results of this study supported the semi-strong efficient market hypothesis.

4.Other semi-strong-form efficient market test results

Stickel (1985) studied the release of the company's ranking he found that information on the impact of stock price's changes on the adjustment of rankings taked up to 3 days, and the extent of this adjustment was permanent, which was consistent with semi-strong efficient market hypothesis.Some scholars investigated on the information from "The Wall Street Journal" ,and they found that the information quickly reflected on the market prices of most stocks, which confirmed the semi-strong-form efficient market hypothesis.

Cooper (2001) found that the company's changing name had a significant positive impact on stock price. Malkiel (2003) studied the separation of a subsidiary of the parent company, the release of this information's impact on stock prices.And he found that when isolated from the parent company subsidiary, the subsidiary's stock price high quirky, the parent company's net assets was negative,.These results were against the semi strong efficient market hypothesis. In view of this, Fama (1991) explained some empirical test results which did not support semi-strong-form efficient market .In his opinion, information release, the stock price drift phenomenon occurred in the abnormal reaction of the information, and he also believed that if stock prices can not quickly react to events, then in order to continue on the semi-strong efficient market hypothesis test , the impact of the joint must be considered.#p#分頁標題#e#

iii.Test of strong-form efficient market 強勢有效市場的檢驗

Strong-form efficient market is that the price of securities reflects not only public information, but also reflects the inside information, investors with inside information have not been over-income. Strong-form efficient market believes that if securities' prices reflect all information, then the market price is the sum of all the price information. Therefore the test of strong efficient market is mainly to judge whether investors with inside information can get excess return, mainly through the insider trading information, the investment performance of fund managers to determine whether the market reached a strong efficient.

1.Insider trading information

In the company, the ones who can have access to inside information, including board members, managers, large shareholders, officers and other employees access to inside trading, these employees may also be from other companies. Jaffe (1974) found through empirical testing by the company's internal staff can gain gain eccess return by inside information .while at the same time, investors' reflection in the market to the insider trading was not quick enough, so that stock prices can not fully reflected to insider information, market did not reach a strong-form efficient level. Seyhun (1986) ,depending on the above information ,explained this phenomenon from the aspect that the insider trading can be profitable , he considered the emergence of this anomaly was mainly due to the capital asset pricing model can not effectively explain the scale.

2.Investment performance of fund managers Positive Test

Since mutual funds are representative of major holders with inside information, many scholars determine the strong effectiveness of the market by empirical study on the investment performance of mutual fund managers. Although some people think that mutual fund managers pwn inside information before making a profit, but because these managers are the top talent in the financial markets, they have a keen insight and perfect professional knowledge, so they can find some favorable information in investment operations to gain profits. Therefore, from a strict point of view, only from the Fund's investment performance we can not judge whether the market achieve strong and effective level or not. Sharp (1965,1966), Trina (1965) and Johnson (1968,1969) went on empirical study on the performance of mutual funds, and their findings supported the strong efficient market hypothesis. Malkiel (1995) with new data re-examined the fund market and found that in terms of overall fund industry still can not beat the market. Jensen (1968,1969), using the capital asset pricing model, 100 funds in 10 years, had empirical test on the performance and found that if you do not take into account transaction costs, the fund sometimes can beat the market , sometimes not, but in considering the transaction costs when nearly 80% of the funds can not beat the market. Some other scholars tested on the pension funds and endowments , such as Beebower and Bergstrom (1977), Munnell (1983), Brinson, Hood and Beebower (1986), Ippplito and Turner (1987) and Shleifer and Vishny (1992), and their results found that donate funds and pension funds generally have poor performance of the market portfolio, and therefore they can not beat the market.#p#分頁標題#e#

The above research results basically believe that the market is strong and effective. But some scholars maintain that the fund can beat the market and the market is not strong and effective.For example, Chang and Lewellen (1984), Henriksson (1984) analyzed empirically on a large number of fund's long-term market performance shows that some fund managers can use their ability to get inside information so that funds of private can get long-term excess profits, meanwhile, Chevalier and Ellison (1996), Brown and Goetzmann (1995) also obtained the same results, they believed that funds can beat the market, so the market is not strong and effective .

III.Conclusion 結論

This essay mainly discusses the views of some famous scholars about the market efficiency and the approaches to test for it. But the validity of the hypothesis has been questioned by critics who blame the belief in rational markets for much of the financial crisis of 2007–2010 ,while Defenders of the EMH caution that conflating market stability with the EMH is unwarranted; when publicly available information is unstable, the market can be just as unstable. For me ,a beginner in this totally new world, I have no experimental data or emprirical test to deliver any opinions ,so whether the market is efficient or not is a question I will continue to study with the above empirical approaches.

[i]Jensen M.C. (1969): Risk, The Pricing of Capital Assets, and The Evaluation of Investment Portfolios, Journal of Business, 42, pp. 168.

[ii]Fama,Eugene F.,Fisher, Lawrence, Jensen, Michael and Roll,Richard,1969,The adjustment of stock prices to new information, International Economic Review,1-21.

Conference 參考文獻

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[2]Jensen M.C. (1969): Risk, The Pricing of Capital Assets, and The Evaluation of Investment Portfolios, Journal of Business, 42, pp. 168.

[3]Paul Samuelson, "Proof That Properly Anticipated Prices Fluctuate Randomly." Industrial Management Review, Vol. 6, No. 2, pp. 41–49. Reproduced as Chapter 198 in Samuelson, Collected Scientific Papers, Volume III, Cambridge, M.I.T. Press, 1972.

[4]Kendall, Maurice. "The Analysis of Economic Time Series". Journal of the Royal Statistical Society 96: 11–25.

[5]Fama, E., and J. MacBeth. "Risk, Return, and Equilibrium: Empirical Tests." Journal of Political Economy, no. 71 (1973).

[6]Ball and Brown, 1968. "An empirical evaluation of accounting income numbers"

[7]Fama E, French K. (1992). The Cross-Section of Expected Stock Returns. Journal of Finance 47:427-465#p#分頁標題#e#

[8]Samuelson, Paul (1965). "Proof That Properly Anticipated Prices Fluctuate Randomly". Industrial Management Review 6: 41–49.

[9] Beechey M, Gruen D, Vickrey J. (2000). The Efficient Markets Hypothesis: A Survey. Reserve Bank of Australia.

[10]Chevalier and Ellison(1997) .Are Some Mutual Fund Managers Better Than Others？ Cross-Sectional Pattens in Behavior and performance.The Journal of Finance 875-898.

[11]Malkiel,Burton G.,1995,Returns from investing in equity mutual funds 1971-1991,Journal of Finance 50,549-572.

[12]Fox, Justin (2009). Myth of the Rational Market.

[13]Nocera, Joe (5 June 2009). "Poking Holes in a Theory on Markets". New York Times. http://www.nytimes.com/2009/06/06/business/06nocera.html?scp=1&sq=efficient%20market&st=cse. Retrieved 8 June 2009.

[14]"On Wall Street, the Price isn't Right". Washington Post. 7 June 2008. http://www.washingtonpost.com/wp-dyn/content/article/2009/06/05/AR2009060502053.html. Retrieved 12 June 2009.

[15]Bjerring,James H.,Josef Lakonishok,and The Vermaelen,1983,“Stock Prices and Financial Analysts Recommendat”,Journal of Finance 38,187-204.

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