Revealing weak-form inefficiency in a market for state contingent claims: The importance of market ecology, modelling procedures and investment strategies
Revealing weak-form inefficiency in a market for state contingent claims: The importance of market ecology, modelling procedures and investment strategies
This paper examines the degree to which current prices discount historical prices in a market for state contingent claims. Conditional logit analysis is employed to predict winning probabilities, based on market prices in a betting market. These are used, together with various wagering strategies to yield substantial abnormal returns. Consequently, in contrast to the existing literature, the results suggest that the market is not weak form efficient. The disparity with previous efficiency studies highlights the importance of considering market ecology and of adopting an appropriate modelling procedure and investment strategy to fully exploit information contained in market prices.
128-147
Sung, M.
2114f823-bc7f-4306-a775-67aee413aa03
Johnson, J.E.V.
6d9f1a51-38a8-4011-a792-bfc82040fac4
2010
Sung, M.
2114f823-bc7f-4306-a775-67aee413aa03
Johnson, J.E.V.
6d9f1a51-38a8-4011-a792-bfc82040fac4
Sung, M. and Johnson, J.E.V.
(2010)
Revealing weak-form inefficiency in a market for state contingent claims: The importance of market ecology, modelling procedures and investment strategies.
Economica, 77 (305), .
(doi:10.1111/j.1468-0335.2008.00716.x).
Abstract
This paper examines the degree to which current prices discount historical prices in a market for state contingent claims. Conditional logit analysis is employed to predict winning probabilities, based on market prices in a betting market. These are used, together with various wagering strategies to yield substantial abnormal returns. Consequently, in contrast to the existing literature, the results suggest that the market is not weak form efficient. The disparity with previous efficiency studies highlights the importance of considering market ecology and of adopting an appropriate modelling procedure and investment strategy to fully exploit information contained in market prices.
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Submitted date: 12 March 2008
Accepted/In Press date: 1 September 2008
Published date: 2010
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Local EPrints ID: 42532
URI: http://eprints.soton.ac.uk/id/eprint/42532
ISSN: 0013-0427
PURE UUID: 1530ef11-7a21-4347-bd02-79665c6e88aa
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Date deposited: 15 Dec 2006
Last modified: 16 Mar 2024 03:39
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J.E.V. Johnson
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