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Speed of Convergence to Market Efficiency: Example of Top loser Stocks

Author

Listed:
  • Han-Ching Huang

    (Corresponding author, Department of finance, Chung Yuan Christian University 200, Chung Pei Road, Chung Li, Taiwan)

  • Yong-Chern Su

    (Department of finance, National Taiwan University 50 Lane 144 Sec. 4, Keelung Road, Taipei, Taiwan)

  • Chun-Chi Shih

    (Department of finance, National Taiwan University. 50 Lane 144 Sec. 4, Keelung Road, Taipei, Taiwan)

Abstract

This study investigates the convergence process toward efficiency of daily top losers. We find that significance of order imbalance coefficients decreases with increasing time interval, indicating evidences on convergence to market efficiency. A time-varying GARCH model is employed to examine the relation between order imbalance and volatility. The significance of order imbalance coefficients shows a decay pattern, which also supports convergence to market efficiency. We develop an imbalance-based trading strategy and can not make profits from these daily top losers under bid/ask price. A nested causality approach, which examines dynamic return-order imbalance relation during price formation process, confirms the results.

Suggested Citation

  • Han-Ching Huang & Yong-Chern Su & Chun-Chi Shih, 2013. "Speed of Convergence to Market Efficiency: Example of Top loser Stocks," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 591-601.
    • Handle: RePEc:eco:journ1:2013-03-4
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    References listed on IDEAS

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    More about this item

    Keywords

    Market efficiency; order imbalance; top losers; volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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