87 research outputs found
Short-term price overreactions: identification, testing, exploitation
This paper examines short-term price reactions after one-day abnormal price changes and whether they create exploitable profit opportunities in various financial markets. Statistical tests confirm the presence of overreactions and also suggest that there is an “inertia anomaly”, i.e. after an overreaction day prices tend to move in the same direction for some time. A trading robot approach is then used to test two trading strategies aimed at exploiting the detected anomalies to make abnormal profits. The results suggest that a strategy based on counter-movements after overreactions does not generate profits in the FOREX and the commodity markets, but in some cases it can be profitable in the US stock market. By contrast, a strategy exploiting the “inertia anomaly” produces profits in the case of the FOREX and the commodity markets, but not in the case of the US stock market
Recommended from our members
Momentum effects in the cryptocurrency market after one-day abnormal returns
© The Author(s) 2020. This paper examines whether there exists a momentum effect after one-day abnormal returns in the cryptocurrency market. For this purpose, a number of hypotheses of interest are tested for the Bitcoin, Ethereum and Litecoin exchange rates vis-à -vis the US dollar over the period 01.01.2015–01.09.2019, specifically whether or not: (H1) the intraday behavior of hourly returns is different on abnormal days compared to normal days; (H2) there is a momentum effect on days with abnormal returns, and (H3) after one-day abnormal returns. The methods used for the analysis include various statistical methods as well as a trading simulation approach. The results suggest that hourly returns during the day of positive/negative abnormal returns are significantly higher/lower than those during the average positive/negative day. The presence of abnormal returns can usually be detected before the day ends by estimating specific timing parameters. Prices tend to move in the direction of the abnormal returns till the end of the day when it occurs, which implies the existence of a momentum effect on that day giving rise to exploitable profit opportunities. This effect (together with profit opportunities) is also observed on the following day. In two cases (BTCUSD positive abnormal returns and ETHUSD negative abnormal returns), a contrarian effect is detected instead.The Ministry of Education and Science of Ukrain
Recommended from our members
Abnormal returns and stock price movements: some evidence from developed and emerging markets
© Infopro Digital Risk (IP) Limited (2022). All rights reserved. The published version of an article which has been published in final form at [DOI URL TBC] will be made available 12 months after publication, date to be confirmed. An electronic version of the preprint may be downloaded:
· from Brunel University London, Department of Economics and Finance working paper no. 2022: https://www.brunel.ac.uk/economics-and-finance/research/pdf/2022-Dec-GMC-Abnormal-returns-in-stock-markets1.pdf · from the SSRN website: www.SSRN.com · from the RePEc website: www.RePEc.org · from the CESifo website: https://www.cesifo.org/DocDL/cesifo1_wp8783.pdf (ISSN 2364-1428 - electronic version).CESifo Working Paper Series No 8783https://www.cesifo.org/DocDL/cesifo1_wp8783.pdfhttps://www.brunel.ac.uk/economics-and-finance/research/pdf/2022-Dec-GMC-Abnormal-returns-in-stock-markets1.pd
Recommended from our members
The day of the week effect in the cryptocurrency market
This paper examines the day of the week effect in the cryptocurrency market using a variety of
statistical techniques (average analysis, Student's t-test, ANOVA, the Kruskal–Wallis test, and
regression analysis with dummy variables) as well as a trading simulation approach. Most crypto
currencies (LiteCoin, Ripple, Dash) are found not to exhibit this anomaly. The only exception is
BitCoin, for which returns on Mondays are significantly higher than those on the other days of the
week. In this case the trading simulation analysis shows that there exist exploitable profit opportunities;
however, most of these results are not significantly different from the random ones
and therefore cannot be seen as conclusive evidence against market efficiency
Persistence in the cryptocurrency market
This paper examines persistence in the cryptocurrency market. Two different long-memory
methods (R/S analysis and fractional integration) are used to analyse it in the case of the four
main cryptocurrencies (BitCoin, LiteCoin, Ripple, Dash) over the sample period 2013–2017. The
findings indicate that this market exhibits persistence (there is a positive correlation between its
past and future values), and that its degree changes over time. Such predictability represents
evidence of market inefficiency: trend trading strategies can be used to generate abnormal profits
in the cryptocurrency market
Short-term price overreactions: Identification, testing, exploitation
This paper examines short-term price reactions after one-day abnormal
price changes and whether they create exploitable profit opportunities in various financial markets. Statistical tests confirm the presence of overreactions and also suggest
that there is an “inertia anomaly”, i.e. after an overreaction day prices tend to move
in the same direction for some time. A trading robot approach is then used to test two
trading strategies aimed at exploiting the detected anomalies to make abnormal profits.
The results suggest that a strategy based on counter-movements after overreactions
does not generate profits in the FOREX and the commodity markets, but in some
cases it can be profitable in the US stock market. By contrast, a strategy exploiting
the “inertia anomaly” produces profits in the case of the FOREX and the commodity
markets, but not in the case of the US stock market
Long memory and data frequency in financial markets
This paper investigates persistence in financial time series at three
different frequencies (daily, weekly and monthly). The analysis is
carried out for various financial markets (stock markets, FOREX, commodity markets) over the period from 2000 to 2016 using two different long memory approaches (R/S analysis and fractional integration) for robustness purposes. The results indicate that persistence
is higher at lower frequencies, for both returns and their volatility.
This is true of the stock markets (both developed and emerging)
and partially of the FOREX and commodity markets examined. Such
evidence against the random walk behaviour implies predictability and is inconsistent with the Efficient Market Hypothesis (EMH),
since abnormal profits can be made using trading strategies based
on trend analysis
Recommended from our members
Daily abnormal price changes and trading strategies in the FOREX
Copyright © 2020, Guglielmo Maria Caporale and Alex Plastun. Purpose
This paper explores abnormal price changes in the FOREX by using both daily and intraday data on the EURUSD, USDJPY, USDCAD, AUDUSD and EURJPY exchange rates over the period 01.01.2008–31.12.2018.
Design/methodology/approach
It applies a dynamic trigger approach to detect abnormal price changes and then various statistical methods, including cumulative abnormal returns analysis, to test the following hypotheses: the intraday behaviour of hourly returns on overreaction days is different from that on normal days (H1), there are detectable patterns in intraday price dynamics on days with abnormal price changes (H2) and on the following days (H3).
Findings
The results suggest that there are statistically significant differences between intraday dynamics on days with abnormal price changes and normal days respectively; also, prices tend to change in the direction of the abnormal change during that day, but move in the opposite direction on the following day. Finally, there exist trading strategies that generate abnormal profits by exploiting the detected anomalies, which can be seen as evidence of market inefficiency.
Originality/value
New evidence on abnormal price changes and related trading strategies in the FOREX.Ministry of Education and Science of Ukrain
Is market fear persistent? A long-memory analysis
This paper investigates the degree of persistence of market fear in the VIX index over the sample
period 2004–2016, as well as some sub-periods. The findings indicate that its properties change
over time: in normal periods it exhibits anti-persistence, whilst during crisis period the level of
persistence is increasing. These results can be informative about the nature of financial bubbles
and anti-bubbles, and provide evidence on whether there exist market inefficiencies that could be
exploited to make abnormal profits by designing appropriate trading strategies
- …