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

Tatsuyoshi Miyakoshi (), Yoshihiko Tsukuda and Junji Shimada
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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

No 07-30, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: 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.

Keywords: investor behaviors; market efficiency; asymmetric response; over-evaluation; EGARCH (search for similar items in EconPapers)
JEL-codes: C10 G12 G14 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2007-08
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Citations: View citations in EconPapers (2)

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