Level of efficiency in the UK equity market: empirical study of the effects of the global financial crisis
Level of efficiency in the UK equity market: empirical study of the effects of the global financial crisis
This paper investigates the effect of good or bad news (the asymmetric effect) on the time-varying beta of firms in the UK during good periods (booms) and bad periods (recessions). Daily data from twenty five UK firms of different sizes and from different industries are applied in the empirical tests. The data ranges from 2004 to 2010, which includes the current global financial crisis. The time-varying betas are created by means of the bivariate BEKK GARCH model, and then linear regressions are applied to test for the asymmetric effect of news on the beta. The asymmetric effects are investigated based on both market and non-market shocks. Most firms and industries seem to support the market efficiency hypothesis during both periods. However, the level of market efficiency seems to decline significantly from the pre-crisis to crisis period. Both the results of market efficiency and declining market efficiency from the pre-crisis to crisis periods provide ample evidence of the asymmetric effect of the financial crisis on the beta of UK firms.
asymmetric effect, time-varying beta, bekk, market efficiency, asset mispricing, G1, G12
213-242
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Jayasekera, Ranadeva
1788723e-6a7e-4302-9358-26acd64ea204
February 2015
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Jayasekera, Ranadeva
1788723e-6a7e-4302-9358-26acd64ea204
Choudhry, Taufiq and Jayasekera, Ranadeva
(2015)
Level of efficiency in the UK equity market: empirical study of the effects of the global financial crisis.
Review of Quantitative Finance and Accounting, 44 (2), .
(doi:10.1007/s11156-013-0404-6).
Abstract
This paper investigates the effect of good or bad news (the asymmetric effect) on the time-varying beta of firms in the UK during good periods (booms) and bad periods (recessions). Daily data from twenty five UK firms of different sizes and from different industries are applied in the empirical tests. The data ranges from 2004 to 2010, which includes the current global financial crisis. The time-varying betas are created by means of the bivariate BEKK GARCH model, and then linear regressions are applied to test for the asymmetric effect of news on the beta. The asymmetric effects are investigated based on both market and non-market shocks. Most firms and industries seem to support the market efficiency hypothesis during both periods. However, the level of market efficiency seems to decline significantly from the pre-crisis to crisis period. Both the results of market efficiency and declining market efficiency from the pre-crisis to crisis periods provide ample evidence of the asymmetric effect of the financial crisis on the beta of UK firms.
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e-pub ahead of print date: 20 September 2013
Published date: February 2015
Keywords:
asymmetric effect, time-varying beta, bekk, market efficiency, asset mispricing, G1, G12
Organisations:
Centre for Digital, Interactive & Data Driven Marketing
Identifiers
Local EPrints ID: 356620
URI: http://eprints.soton.ac.uk/id/eprint/356620
ISSN: 0924-865X
PURE UUID: fa0ffffc-dff6-463a-9ce0-282346e28a3c
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Date deposited: 13 Sep 2013 13:28
Last modified: 15 Mar 2024 03:06
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Author:
Ranadeva Jayasekera
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