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Market Efficiency of Commercial Bank in Financial Crisis

Author

Listed:
  • Han-Ching Huang

    (Department of Finance, Chung Yuan Christian University, Taoyuan, 32023 Taiwan)

  • Yong-Chern Su

    (Department of Finance, National Taiwan University, Taiwan)

  • Tze-Yi Lin

    (Department of Finance, National Taiwan University, Taiwan)

Abstract

This study investigates commercial bank market efficiency in financial crisis. We employ a time-varying generalized autoregressive conditional heteroskedasticity (GARCH) model because volatility matters in financial crisis. The empirical results show a significant positive relation between contemporaneous order imbalances and returns in convergence process toward efficiency. A direct linkage between volatility and order imbalances is examined by GARCH model. Surprisingly, a low connection exists between order imbalance and price volatility, implying that market makers are capable of mitigating commercial bank prices volatility in financial crisis. We develop an imbalance based trading strategy but fail to beat the market. Anested causality approach, which examines the dynamic return-order imbalance relationship during the price formation process, confirms the results.

Suggested Citation

  • Han-Ching Huang & Yong-Chern Su & Tze-Yi Lin, 2016. "Market Efficiency of Commercial Bank in Financial Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 756-764.
    • Handle: RePEc:eco:journ1:2016-02-52
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    References listed on IDEAS

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    Cited by:

    1. Han-ching Huang & Yong-chern Su & Hsin-Pei Tu, 2018. "Illiquid Trades on Investment Banks in Financial Crisis," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(5), pages 1-5.

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    More about this item

    Keywords

    Order Imbalance; Market Efficiency; Commercial Bank; Financial Crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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