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Convergence to market efficiency of top gainers

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  • 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
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    Cited by:

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    3. 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.
    4. 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, January-A.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
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    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. 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.

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