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Market Efficiency, Asymmetric Price Adjustment and Over-Evaluation: Linking Investor Behaviors to EGARCH

Listed author(s):
  • Tatsuyoshi Miyakoshi


    (Osaka School of International Public Policy (OSIPP), Osaka University)

  • Yoshihiko Tsukuda

    (Graduate School of Economics, Tohoku University)

  • Junji Shimada

    (School of Management, Aoyama Gakuin University)

Registered author(s):

    The 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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    Paper 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.

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    Length: 21 pages
    Date of creation: Aug 2007
    Handle: RePEc:osk:wpaper:0730
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