The efficient market hypothesis: the applicability of quantitative methods to foreign stocks traded as American depository receipts (ADRs)
by Darrol J. Stanley; Michael D. Kinsman; Bruce A. Samuelson
International Journal of Entrepreneurship and Small Business (IJESB), Vol. 19, No. 3, 2013

Abstract: The efficient market hypothesis assumes each security's price remains at continuous parity with its investment value. This presumption elicits challenge. The efficient market hypothesis denies that mechanical trading rules from either price or fundamental data are investment strategies capable of outperforming market averages on a risk-adjusted basis after transaction costs. US academic literature is now presenting contrary evidence. Vigorous investigations into alleged validity of the efficient market hypothesis challenge scholarly investigators to uncover pockets of inefficiency in their attempts to disprove market efficiency. This study cited two noted anomalies from the US markets. The two analyses were applied to the American depository receipt stock market to determine whether these anomalies likewise exist. This study investigates the weak-form through a price momentum reversal and volume strategy. Further, it investigated a semi-strong form EMH through a mechanical trading strategy of price momentum reversal and value and earnings momentum. The study period was for ten years ending December 31, 2011 incorporating monthly rebalancing equally-weighted. Results were formulated on a total return basis and expressed on a geometric basis. The top monthly weak-form portfolio supported the efficiency of the market. The top monthly semi-strong portfolio indicated a pocket of exploitable inefficiency.

Online publication date: Mon, 30-Sep-2013

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Entrepreneurship and Small Business (IJESB):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com