Does relative efficiency matter? An analysis of market uncertainty

Lim, Hyoung Joo and Mali, Dafydd ORCID: https://orcid.org/0000-0003-3582-2429 (2018) Does relative efficiency matter? An analysis of market uncertainty. Investment Analysts Journal, 47 (2). pp. 127-148. ISSN 1029-3523

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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:	Publisher Copyright: © 2018 Investment Analysts Society of South Africa.
Uncontrolled Keywords:	market risk,news sensitivity,relative efficiency,stock price volatility,accounting,finance,economics and econometrics ,/dk/atira/pure/subjectarea/asjc/1400/1402
Faculty \ School:	Faculty of Social Sciences > Norwich Business School
Related URLs:	http://www.scopus.com/inward/record.url?...
Depositing User:	LivePure Connector
Date Deposited:	22 Aug 2024 15:30
Last Modified:	25 Sep 2024 18:03
URI:	https://ueaeprints.uea.ac.uk/id/eprint/96327
DOI:	10.1080/10293523.2018.1466491

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