Market Efficiency, Asymmetric Price Adjustment and Over-Evaluation: Linking Investor Behaviors to EGARCH
AbstractThe paper incorporates a partial asymmetric price adjustment model for individual investors action into an EGARCH model, clarifies the relationship between the price adjustment speed, the market efficiency and asymmetric price adjustment, and measures over (under)-evaluation of stock value. The stock price does not fully adjust to the market value of stocks hoped by investors and does not adjust symmetrically in upturn and downturn, if and only if the market is not efficient, and moreover the market value generally diverts from the fundamental value of stocks even though the market is efficient. As an operational example, the Tokyo stock market is found to be inefficient during 1980-2005. The speed of price adjustment is asymmetric in the 80s but symmetric in the 90s and 2000s. The over-evaluation of the market value is remarkably observed in the 80s but not in the 90s and 2000s.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 07-30.
Length: 21 pages
Date of creation: Aug 2007
Date of revision:
investor behaviors; market efficiency; asymmetric response; over-evaluation; EGARCH;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-18 (All new papers)
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