Speed of Convergence to Market Efficiency: Example of Top loser Stocks

Han-Ching Huang, Yong-Chern Su and Chun-Chi Shih
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Han-Ching Huang: Corresponding author, Department of finance, Chung Yuan Christian University 200, Chung Pei Road, Chung Li, Taiwan
Yong-Chern Su: Department of finance, National Taiwan University 50 Lane 144 Sec. 4, Keelung Road, Taipei, Taiwan
Chun-Chi Shih: Department of finance, National Taiwan University. 50 Lane 144 Sec. 4, Keelung Road, Taipei, Taiwan

International Journal of Economics and Financial Issues, 2013, vol. 3, issue 3, 591-601

Abstract: This study investigates the convergence process toward efficiency of daily top losers. We find that significance of order imbalance coefficients decreases with increasing time interval, indicating evidences on convergence to market efficiency. A time-varying GARCH model is employed to examine the relation between order imbalance and volatility. The significance of order imbalance coefficients shows a decay pattern, which also supports convergence to market efficiency. We develop an imbalance-based trading strategy and can not make profits from these daily top losers under bid/ask price. A nested causality approach, which examines dynamic return-order imbalance relation during price formation process, confirms the results.

Keywords: Market efficiency; order imbalance; top losers; volatility (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2013
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