IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v34y2010i9p2230-2237.html
   My bibliography  Save this article

Convergence to market efficiency of top gainers

Author

Listed:
  • Su, Yong-Chern
  • Huang, Han-Ching
  • Hsu, Ming-Wei

Abstract

This study investigates the convergence process toward efficiency of daily top gainers. The convergence process toward efficiency is much clearer as a result of using a GARCH(1, 1) model compared to the OLS model, and exhibits a monotonic decline as the time interval increases. The relationship between volatility and order imbalances is, however, not strong enough, suggesting that market makers do have the capability to reduce price volatility. This study develops an imbalance-based trading strategy, which earns a positive profit but fails to outperform the buy-and-hold strategy (i.e., open-to-close returns). A nested causality approach, which examines the dynamic return-order imbalance relationship during the price-formation process, confirms the results.

Suggested Citation

  • Su, Yong-Chern & Huang, Han-Ching & Hsu, Ming-Wei, 2010. "Convergence to market efficiency of top gainers," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2230-2237, September.
    • Handle: RePEc:eee:jbfina:v:34:y:2010:i:9:p:2230-2237
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(10)00068-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Darrat, Ali F. & Zhong, Maosen & Cheng, Louis T.W., 2007. "Intraday volume and volatility relations with and without public news," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2711-2729, September.
    2. Chen, Chung & Wu, Chunchi, 1999. "The dynamics of dividends, earnings and prices: evidence and implications for dividend smoothing and signaling," Journal of Empirical Finance, Elsevier, vol. 6(1), pages 29-58, January.
    3. Durham, J. Benson, 2001. "Sensitivity analyses of anomalies in developed stock markets," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1503-1541, August.
    4. Brown, Philip & Walsh, David & Yuen, Andrea, 1997. "The interaction between order imbalance and stock price," Pacific-Basin Finance Journal, Elsevier, vol. 5(5), pages 539-557, December.
    5. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2005. "Evidence on the speed of convergence to market efficiency," Journal of Financial Economics, Elsevier, vol. 76(2), pages 271-292, May.
    6. YongChern Su & HanChing Huang, 2008. "Dynamic causality between intraday return and order imbalance in NASDAQ speculative top gainers," Applied Financial Economics, Taylor & Francis Journals, vol. 18(18), pages 1489-1499.
    7. Aktas, Nihat & de Bodt, Eric & Van Oppens, Hervé, 2008. "Legal insider trading and market efficiency," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1379-1392, July.
    8. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    9. Visaltanachoti, Nuttawat & Yang, Ting, 2010. "Speed of convergence to market efficiency for NYSE-listed foreign stocks," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 594-605, March.
    10. Chordia, Tarun & Subrahmanyam, Avanidhar, 2004. "Order imbalance and individual stock returns: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 72(3), pages 485-518, June.
    11. Chakrabarty, Bidisha & Li, Bingguang & Nguyen, Vanthuan & Van Ness, Robert A., 2007. "Trade classification algorithms for electronic communications network trades," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3806-3821, December.
    12. Rachev, Svetlozar & Jasic, Teo & Stoyanov, Stoyan & Fabozzi, Frank J., 2007. "Momentum strategies based on reward-risk stock selection criteria," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2325-2346, August.
    13. Huang, Dayong & Wang, Fang, 2009. "Cash, investments and asset returns," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2301-2311, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jagjeev Dosanjh, 2017. "Exchange Initiatives and Market Efficiency: Evidence from the Australian Securities Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2017.
    2. Narayan, Paresh Kumar & Mishra, Sagarika & Narayan, Seema, 2011. "Do market capitalization and stocks traded converge? New global evidence," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2771-2781, October.
    3. Yingyi Hu, 2019. "Short-horizon market efficiency, order imbalance, and speculative trading: evidence from the Chinese stock market," Annals of Operations Research, Springer, vol. 281(1), pages 253-274, October.
    4. Akram, Vaseem & Rath, Badri Narayan & Sahoo, Pradipta Kumar, 2020. "Stochastic conditional convergence in per capita energy consumption in India," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 224-240.
    5. Muresan Diana, 2013. "The Patterns Of Eu Stock Markets. Is There A Sign Of Convergence?," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 1250-1265, July.
    6. Simplice A. Asongu, 2013. "African Stock Market Performance Dynamics: A Multidimensional Convergence Assessment," Journal of African Business, Taylor & Francis Journals, vol. 14(3), pages 186-201, December.
    7. Yamamoto, Ryuichi, 2012. "Intraday technical analysis of individual stocks on the Tokyo Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3033-3047.
    8. Rath, Badri Narayan, 2016. "Does the digital divide across countries lead to convergence? New international evidence," Economic Modelling, Elsevier, vol. 58(C), pages 75-82.
    9. Chi Ming Ho, 2013. "Private information, overconfidence and intraday trading behaviour: empirical study of the Taiwan stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 23(4), pages 325-345, February.
    10. Kim, Sei-Wan & Lee, Bong-Soo & Kim, Young-Min, 2014. "Who mimics whom in the equity fund market? Evidence from the Korean equity fund market," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 199-218.
    11. Chung, Dennis Y. & Hrazdil, Karel, 2012. "Speed of convergence to market efficiency: The role of ECNs," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 702-720.
    12. repec:uts:finphd:34 is not listed on IDEAS
    13. Han-ching Huang & Yong-chern Su & Szu-Chieh Yang, 2019. "Illiquid Trades on Insurance Companies in Financial Crisis," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 9(5), pages 1-5.
    14. Ting Zhang & George J. Jiang & Wei‐Xing Zhou, 2021. "Order imbalance and stock returns: New evidence from the Chinese stock market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 2809-2836, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Chung, Dennis & Hrazdil, Karel, 2010. "Liquidity and market efficiency: A large sample study," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2346-2357, October.
    3. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2008. "Liquidity and market efficiency," Journal of Financial Economics, Elsevier, vol. 87(2), pages 249-268, February.
    4. Yingyi Hu, 2019. "Short-horizon market efficiency, order imbalance, and speculative trading: evidence from the Chinese stock market," Annals of Operations Research, Springer, vol. 281(1), pages 253-274, October.
    5. Chung, Dennis Y. & Hrazdil, Karel, 2012. "Speed of convergence to market efficiency: The role of ECNs," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 702-720.
    6. Ting Zhang & George J. Jiang & Wei‐Xing Zhou, 2021. "Order imbalance and stock returns: New evidence from the Chinese stock market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 2809-2836, June.
    7. Chung, Dennis Y. & Hrazdil, Karel & Trottier, Kim, 2015. "On the efficiency of intra-industry information transfers: The dilution of the overreaction anomaly," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 153-167.
    8. Espen Sirnes & Minh Thi Hong Dinh, 2021. "Tick Size and Price Reversal after Order Imbalance," IJFS, MDPI, vol. 9(2), pages 1-13, March.
    9. 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.
    10. Yamamoto, Ryuichi, 2012. "Intraday technical analysis of individual stocks on the Tokyo Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3033-3047.
    11. Jagjeev Dosanjh, 2017. "Exchange Initiatives and Market Efficiency: Evidence from the Australian Securities Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2017.
    12. repec:uts:finphd:34 is not listed on IDEAS
    13. Ibikunle, Gbenga & Gregoriou, Andros & Hoepner, Andreas G.F. & Rhodes, Mark, 2016. "Liquidity and market efficiency in the world's largest carbon market," The British Accounting Review, Elsevier, vol. 48(4), pages 431-447.
    14. Reboredo, Juan C. & Rivera-Castro, Miguel A. & Miranda, José G.V. & García-Rubio, Raquel, 2013. "How fast do stock prices adjust to market efficiency? Evidence from a detrended fluctuation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(7), pages 1631-1637.
    15. YongChern Su & HanChing Huang, 2008. "Dynamic causality between intraday return and order imbalance in NASDAQ speculative top gainers," Applied Financial Economics, Taylor & Francis Journals, vol. 18(18), pages 1489-1499.
    16. Kumar, Kiran & Mamidi, Varsha & Marisetty, Vijaya, 2011. "Global markets exposure and price efficiency: An empirical analysis of order flow dynamics of NYSE-listed Indian firms," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 686-706.
    17. Tirapat, Sunti & Visaltanachoti, Nuttawat, 2013. "Opportunistic insider trading," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1046-1061.
    18. Michael Weigerding & Michael Hanke, 2018. "Drivers of seasonal return patterns in German stocks," Business Research, Springer;German Academic Association for Business Research, vol. 11(1), pages 173-196, February.
    19. Chen, Pei-wen & Huang, Han-ching & Su, Yong-chern, 2014. "The central bank in market efficiency: The case of Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 239-260.
    20. Tóth, Bence & Palit, Imon & Lillo, Fabrizio & Farmer, J. Doyne, 2015. "Why is equity order flow so persistent?," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 218-239.
    21. Mohanty, Sunil K. & Mishra, Sibanjan, 2020. "Regulatory reform and market efficiency: The case of Indian agricultural commodity futures markets," Research in International Business and Finance, Elsevier, vol. 52(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:34:y:2010:i:9:p:2230-2237. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.