Market Efficiency of Commercial Bank in Financial Crisis

Han-Ching Huang, Yong-Chern Su and Tze-Yi Lin
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Han-Ching Huang: Department of Finance, Chung Yuan Christian University, Taoyuan, 32023 Taiwan
Yong-Chern Su: Department of Finance, National Taiwan University, Taiwan
Tze-Yi Lin: Department of Finance, National Taiwan University, Taiwan

International Journal of Economics and Financial Issues, 2016, vol. 6, issue 2, 756-764

Abstract: This study investigates commercial bank market efficiency in financial crisis. We employ a time-varying generalized autoregressive conditional heteroskedasticity (GARCH) model because volatility matters in financial crisis. The empirical results show a significant positive relation between contemporaneous order imbalances and returns in convergence process toward efficiency. A direct linkage between volatility and order imbalances is examined by GARCH model. Surprisingly, a low connection exists between order imbalance and price volatility, implying that market makers are capable of mitigating commercial bank prices volatility in financial crisis. We develop an imbalance based trading strategy but fail to beat the market. Anested causality approach, which examines the dynamic return-order imbalance relationship during the price formation process, confirms the results.

Keywords: Order Imbalance; Market Efficiency; Commercial Bank; Financial Crisis (search for similar items in EconPapers)
JEL-codes: G01 G14 G21 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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