Exploring the Existence of Efficiency in the Financial Markets

Research Article
Open access

Exploring the Existence of Efficiency in the Financial Markets

Runyang Ran 1* , Luntai Wang 2 , Linyu Fu 3
  • 1 University of Toronto    
  • 2 University of Toronto    
  • 3 University of Toronto    
  • *corresponding author runyang.ran@mail.utoronto.ca
Published on 13 September 2023 | https://doi.org/10.54254/2754-1169/13/20230741
AEMPS Vol.13
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-915371-69-0
ISBN (Online): 978-1-915371-70-6

Abstract

Since the market efficiency hypothesis theory was introduced by Fama in 1970, many investors and researchers argued about the efficiency form of the real financial market. In the real financial market, there are solid pieces of evidence that the price of securities could reflect related public information. However, as real human beings, the investors in the financial market are not always rational and act according to the assumptions stated in the market efficiency theory, which results in a reduction in the efficiency of the real financial market. In this paper, our group tends to use two different views (investors and companies) to prove that all of the market efficiency hypothesis theory assumptions are violated in the real financial market, and the current market efficiency is weak. From an investors’ view, our group tends to analyze the effect of psychological factors from investors on market efficiency. Furthermore, from the companies’ side, our group tends to use case analysis to provide solid evidence for the market efficiency analysis.

Keywords:

market efficiency, real financial market, psychological factors

Ran,R.;Wang,L.;Fu,L. (2023). Exploring the Existence of Efficiency in the Financial Markets. Advances in Economics, Management and Political Sciences,13,335-342.
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References

[1]. Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance (New York), 25(2), 383–. https://doi.org/10.2307/2325486

[2]. Baldridge, R. (2022, May 11). What Is the Efficient Market Hypothesis? Forbes Advisor. Retrieved October 2, 2022, from https://www.forbes.com/advisor/investing/efficient-market-hypothesis/

[3]. Market efficiency theoretically rests on three supports, which is investor rationality, uncorrelated errors and unlimited arbitrage - University Business and Administrative studies - Marked by Teachers.com. (n.d.). Retrieved October 2, 2022, from https://www.markedbyteachers.com/university-degree/business-and-administrative-studies/market-efficiency-theoretically-rests-on-three-supports-which-is-investor-rationality-uncorrelated-errors-and-unlimited-arbitrage.html

[4]. Seasonal affective disorder (SAD) - Symptoms and causes. (2021, December 14). Mayo Clinic. Retrieved October 2, 2022, from https://www.mayoclinic.org/diseases-conditions/seasonal-affective-disorder/symptoms-causes/syc-20364651#:%7E:text=The%20reduced%20level%20of%20sunlight,play%20a%20role%20in%20SAD%20.

[5]. Seasonal affective disorder: MedlinePlus Genetics. (n.d.). Retrieved October 2, 2022, from https://medlineplus.gov/genetics/condition/seasonal-affective-disorder/

[6]. Kamstra, M. J., Kramer, L. A., & Levi, M. D. (2015). Seasonal Variation in Treasury Returns. Critical Finance Review, 4(1), 45–115. https://doi.org/10.1561/104.00000021

[7]. Hirshleifer, D., & Shumway, T. (2003). Good Day Sunshine: Stock Returns and the Weather. The Journal of Finance (New York), 58(3), 1009–1032. https://doi.org/10.1111/1540-6261.00556

[8]. Katz, J.N., McCubbins, M.D., & McMullin, J.L. (2018). The Post-Earnings Announcement Drift: An Anomalous Anomaly.

[9]. Netflix Inc (NFLX) Stock Price & News. (n.d.). Google Finance. Retrieved October 2, 2022, from https://www.google.com/finance/quote/NFLX:NASDAQ?sa=X&ved=2ahUKEwjF4qejzcL6AhX7lYkEHWBeCr8Q3ecFegQINBAg&ucbcb=1

[10]. Bursztynsky, J., & Alessandrini, S. (2022, April 21). Netflix closes down 35% wiping more than $50 billion off market cap. CNBC. Retrieved October 2, 2022, from https://www.cnbc.com/2022/04/20/netflix-plunges-trading-subscriber-loss.html

[11]. Kaestner, M. (2006). Anomalous Price Behavior Following Earnings Surprises: Does Representativeness Cause Overreaction? Finance (Paris), 27(2), 5–31. https://doi.org/10.3917/fina.272.0005

[12]. Morrow, A. (2021, January 28). Everything you need to know about how a Reddit group blew up GameStop’s stock. CNN. Retrieved October 2, 2022, from https://edition.cnn.com/2021/01/27/investing/gamestop-reddit-stock/index.html

[13]. GameStop Corp. (GME) Stock Price, News, Quote & History. (n.d.-b). Retrieved October 2, 2022, from https://finance.yahoo.com/quote/GME?p=GME

[14]. Ghosh, M. G. (2020, April). Luckin Coffee: From Brewing Coffee to Cooking the Books. JUMPSTART. Retrieved October 2, 2022, from https://www.jumpstartmag.com/luckin-coffee-from-brewing-coffee-to-cooking-the-books/

[15]. Wang, S., & Campbell, M. (2020, July). Luckin Scandal Is Bad Timing for U.S.-Listed Chinese Companies. Bloomberg. Retrieved October 2, 2022, from https://www.bloomberg.com/news/features/2020-07-29/luckin-coffee-fraud-behind-starbucks-competitor-s-scandal?leadSource=uverify%20wall

[16]. Luckin Coffee Inc. (LKNCY) Stock Price, News, Quote & History. (n.d.-b). Retrieved October 2, 2022, from https://finance.yahoo.com/quote/LKNCY/

[17]. Glencore Entered Guilty Pleas to Foreign Bribery and Market. (2022, May 25). Retrieved October 2, 2022, from https://www.justice.gov/opa/pr/glencore-entered-guilty-pleas-foreign-bribery-and-market-manipulation-schemes

[18]. Attorney General Merrick B. Garland Delivers Remarks Announcing. (2022, May 25). Retrieved October 2, 2022, from https://www.justice.gov/opa/speech/attorney-general-merrick-b-garland-delivers-remarks-announcing-glencore-guilty-pleas

[19]. Glencore plc (GLEN.L) Stock Price, News, Quote & History. (n.d.-b). Retrieved October 2, 2022, from https://finance.yahoo.com/quote/GLEN.L?p=GLEN.L

Cite this article

Ran,R.;Wang,L.;Fu,L. (2023). Exploring the Existence of Efficiency in the Financial Markets. Advances in Economics, Management and Political Sciences,13,335-342.

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About volume

Volume title: Proceedings of the 2nd International Conference on Business and Policy Studies

ISBN：978-1-915371-69-0(Print) / 978-1-915371-70-6(Online)
Editor：Javier Cifuentes-Faura, Canh Thien Dang
Conference website: https://2023.confbps.org/
Conference date: 26 February 2023
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.13
ISSN：2754-1169(Print) / 2754-1177(Online)

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References

[1]. Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance (New York), 25(2), 383–. https://doi.org/10.2307/2325486

[2]. Baldridge, R. (2022, May 11). What Is the Efficient Market Hypothesis? Forbes Advisor. Retrieved October 2, 2022, from https://www.forbes.com/advisor/investing/efficient-market-hypothesis/

[3]. Market efficiency theoretically rests on three supports, which is investor rationality, uncorrelated errors and unlimited arbitrage - University Business and Administrative studies - Marked by Teachers.com. (n.d.). Retrieved October 2, 2022, from https://www.markedbyteachers.com/university-degree/business-and-administrative-studies/market-efficiency-theoretically-rests-on-three-supports-which-is-investor-rationality-uncorrelated-errors-and-unlimited-arbitrage.html

[4]. Seasonal affective disorder (SAD) - Symptoms and causes. (2021, December 14). Mayo Clinic. Retrieved October 2, 2022, from https://www.mayoclinic.org/diseases-conditions/seasonal-affective-disorder/symptoms-causes/syc-20364651#:%7E:text=The%20reduced%20level%20of%20sunlight,play%20a%20role%20in%20SAD%20.

[5]. Seasonal affective disorder: MedlinePlus Genetics. (n.d.). Retrieved October 2, 2022, from https://medlineplus.gov/genetics/condition/seasonal-affective-disorder/

[6]. Kamstra, M. J., Kramer, L. A., & Levi, M. D. (2015). Seasonal Variation in Treasury Returns. Critical Finance Review, 4(1), 45–115. https://doi.org/10.1561/104.00000021

[7]. Hirshleifer, D., & Shumway, T. (2003). Good Day Sunshine: Stock Returns and the Weather. The Journal of Finance (New York), 58(3), 1009–1032. https://doi.org/10.1111/1540-6261.00556

[8]. Katz, J.N., McCubbins, M.D., & McMullin, J.L. (2018). The Post-Earnings Announcement Drift: An Anomalous Anomaly.

[9]. Netflix Inc (NFLX) Stock Price & News. (n.d.). Google Finance. Retrieved October 2, 2022, from https://www.google.com/finance/quote/NFLX:NASDAQ?sa=X&ved=2ahUKEwjF4qejzcL6AhX7lYkEHWBeCr8Q3ecFegQINBAg&ucbcb=1

[10]. Bursztynsky, J., & Alessandrini, S. (2022, April 21). Netflix closes down 35% wiping more than $50 billion off market cap. CNBC. Retrieved October 2, 2022, from https://www.cnbc.com/2022/04/20/netflix-plunges-trading-subscriber-loss.html

[11]. Kaestner, M. (2006). Anomalous Price Behavior Following Earnings Surprises: Does Representativeness Cause Overreaction? Finance (Paris), 27(2), 5–31. https://doi.org/10.3917/fina.272.0005

[12]. Morrow, A. (2021, January 28). Everything you need to know about how a Reddit group blew up GameStop’s stock. CNN. Retrieved October 2, 2022, from https://edition.cnn.com/2021/01/27/investing/gamestop-reddit-stock/index.html

[13]. GameStop Corp. (GME) Stock Price, News, Quote & History. (n.d.-b). Retrieved October 2, 2022, from https://finance.yahoo.com/quote/GME?p=GME

[14]. Ghosh, M. G. (2020, April). Luckin Coffee: From Brewing Coffee to Cooking the Books. JUMPSTART. Retrieved October 2, 2022, from https://www.jumpstartmag.com/luckin-coffee-from-brewing-coffee-to-cooking-the-books/

[15]. Wang, S., & Campbell, M. (2020, July). Luckin Scandal Is Bad Timing for U.S.-Listed Chinese Companies. Bloomberg. Retrieved October 2, 2022, from https://www.bloomberg.com/news/features/2020-07-29/luckin-coffee-fraud-behind-starbucks-competitor-s-scandal?leadSource=uverify%20wall

[16]. Luckin Coffee Inc. (LKNCY) Stock Price, News, Quote & History. (n.d.-b). Retrieved October 2, 2022, from https://finance.yahoo.com/quote/LKNCY/

[17]. Glencore Entered Guilty Pleas to Foreign Bribery and Market. (2022, May 25). Retrieved October 2, 2022, from https://www.justice.gov/opa/pr/glencore-entered-guilty-pleas-foreign-bribery-and-market-manipulation-schemes

[18]. Attorney General Merrick B. Garland Delivers Remarks Announcing. (2022, May 25). Retrieved October 2, 2022, from https://www.justice.gov/opa/speech/attorney-general-merrick-b-garland-delivers-remarks-announcing-glencore-guilty-pleas

[19]. Glencore plc (GLEN.L) Stock Price, News, Quote & History. (n.d.-b). Retrieved October 2, 2022, from https://finance.yahoo.com/quote/GLEN.L?p=GLEN.L

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