Does relative efficiency matter? An analysis of market uncertainty

LIM, Hyoung-joo and MALI, Dafydd (2018). Does relative efficiency matter? An analysis of market uncertainty. Investment Analysts Journal, 47 (2), 127-148.

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Abstract

In this paper, we examine whether relative efficiency provides useful information for investment decisions. We find that efficient firms have lower levels of stock price volatility compared to inefficient firms. The results suggest that market participants consider relative efficiency when making investment decisions. This finding is consistent with investors speculating in inefficient firms due to potential stock return opportunities that increase the uncertainty levels of inefficient firms. Next, we test whether higher levels of investment and disinvestment in inefficient firms are due to potential investment opportunities. We find a positive relation between stock price volatility and market returns. Moreover, we find a negative relation between stock returns and relative efficiency. These findings show that inefficient firms provide high-risk, high-return potential investment opportunities; and efficient firms can be considered low-risk, low-return investment opportunities.

Item Type:	Article
Additional Information:	** From Crossref via Jisc Publications Router.
Identification Number:	https://doi.org/10.1080/10293523.2018.1466491
Page Range:	127-148
SWORD Depositor:	Margaret Boot
Depositing User:	Margaret Boot
Date Deposited:	05 Jun 2018 11:38
Last Modified:	18 Mar 2021 01:19
URI:	https://shura.shu.ac.uk/id/eprint/21413

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