Testing for Over-Reaction and Under-Reaction in Chinese Shanghai Composite Index Constituent Stocks and Australian Resource Stocks

Santosh Mon Abraham

Abstract


This paper describes a new formulation of the partial adjustment model (PAM) and its speed of adjustment coefficient. Speed of adjustment coefficients have been used to measure the efficiency or inefficiency in financial markets. Using the model by Amihud and Mendelson (1987), Damodaran (1993) and Brisely and Theobald (1996) and Theobald and Yallop (2004) have developed speed of adjustment coefficients for this purpose. Whilst their formulation suffers from non-synchronous problems, the formulation of the new PAM in this paper avoids such problems. The new PAM is used to measure the efficiency of CSC constituent stocks and Australian resource stocks. In both categories, some stocks over-react, some under-react and some fully adjust to new economic information and are efficient.


Full Text: PDF DOI: 10.5539/ijef.v5n10p51

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

Copyright © Canadian Center of Science and Education

To make sure that you can receive messages from us, please add the 'ccsenet.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.