Is weak form efficiency an illusion? Evidence from a market for state contingent claims
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چکیده
This paper examines the importance of methodology and market ecology when examining the extent to which a market is weak form efficient. Existing literature points to most markets being weak form efficient. However, it is argued here that this may be an artefact of the methodology employed in these studies and the fact that market ecology is often neglected when examining weak form efficiency. We demonstrate how big data from a market for state contingent claims can be used to examine weak form efficiency and to predict market prices employing conditional logit analysis. These are used, together with various trading strategies to yield substantial abnormal returns. Consequently, in contrast to the existing literature, the results suggest that the market is not weak form efficient. We discuss the various aspects of methodology and market ecology which can explain the reported results and the important implications for future market efficiency studies. In particular, we highlight the importance for efficiency studies of considering market characteristics which influence behavior and the importance of considering an appropriate investment strategy.
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تاریخ انتشار 2015