Maria Manuel – Escola Superior de Ciências Empresarias – Instituto Politécnico de Setúbal, Portugal
Paula Heliodoro – Escola Superior de Ciências Empresarias – Instituto Politécnico de Setúbal, Portugal
Rui Dias – Escola Superior de Ciências Empresarias – Instituto Politécnico de Setúbal, Portugal & CEFAGE, Universidade de Évora, Portugal
Paulo Alexandre – Escola Superior de Ciências Empresarias – Instituto Politécnico de Setúbal, Portugal
6th International Scientific-Business Conference – LIMEN 2020 – Leadership, Innovation, Management and Economics: Integrated Politics of Research – CONFERENCE PROCEEDINGS, Online/virtual, November 26, 2020, published by the Association of Economists and Managers of the Balkans, Belgrade; Printed by: SKRIPTA International, Belgrade, ISBN 978-86-80194-39-4, ISSN 2683-6149, DOI: https://doi.org/10.31410/LIMEN.2020
The Efficient Market Hypothesis (EMH), is one of the most important hypotheses in the financial economy, which argues that yields have no memory (correlation), which implies that agents cannot have abnormal returns in the financial markets, base arbitration operations. This essay intends to investigate the efficiency, in its weak form, in the stock and bond markets of Portugal and EDP, in the period from December 31, 2019, to August 10, 2020. With the purpose of achieving such an analysis, whether: (i) with the evolution of the global pandemic (Covid-19) the Portuguese and EDP stock and bond markets show signs of (in) efficiency? (ii) Does the increased integration between the Portuguese and EDP stock and bond markets result in risk transmission? The model 𝐷𝐹𝐴 shows the existence of long memories in these markets, suggesting that they are not efficient, which validates the first research question. This situation has implications for investors, since some returns can be expected, creating opportunities for arbitrage and abnormal earnings. However, to confirm the inefficiency of these markets, based on our results, we must prove the existence of anomalous returns. In order to answer the second investigation question, we carried out the integration test that shows that these markets are mostly integrated. To validate whether financial integration results in risk transmission between the analyzed markets, we estimate the trendless cross-correlation coefficients (𝜆𝐷𝐶𝐶𝐴), which shows 4 pairs of markets showing risk transmission (4 out of 10 possible). In conclusion, the authors suggest that these results are of interest, among others, to international investors interested in expanding the geographical scope, regarding the implementation of portfolio diversification strategies.
Covid-19, Long memories, Financial integration, Portfolio diversification.
Alexandre, P., Dias, R., & Heliodoro, P. (2020a). EUROPEAN FINANCIAL MARKET INTEGRATION: A CLOSER LOOK AT GOVERNMENT BONDS IN EUROZONE COUNTRIES. Balkans Journal of Emerging Trends in Social Sciences, 3(1), 78–86. https://doi.org/10.31410/balkans.jetss.2020.3.1.78-86
Alexandre, P., Dias, R., & Heliodoro, P. (2020b). HOW LONG IS THE MEMORY OF THE REGION LAC STOCK MARKET? Balkans Journal of Emerging Trends in Social Sciences, 3(2). https://doi.org/10.31410/balkans.jetss.2020.3.2.131-137
Aggarwal, D. (2018). Random walk model and asymmetric effect in Korean composite stock price index. Afro-Asian J. of Finance and Accounting. https://doi.org/10.1504/aajfa.2018.10009906
Ali, S., Shahzad, S. J. H., Raza, N., & Al-Yahyaee, K. H. (2018). Stock market efficiency: A comparative analysis of Islamic and conventional stock markets. Physica A: Statistical Mechanics and Its Applications. https://doi.org/10.1016/j.physa.2018.02.169
Bashir, U., Zebende, G. F., Yu, Y., Hussain, M., Ali, A., & Abbas, G. (2019). Differential market reactions to pre and post Brexit referendum. Physica A: Statistical Mechanics and Its Applications. https://doi.org/10.1016/j.physa.2018.09.182
Clemente, J., Montañés, A., & Reyes, M. (1998). Testing for a unit root in variables with a double change in the mean. Economics Letters, 59(2), 175–182. https://doi.org/10.1016/S0165-1765(98)00052-4
da Silva, L. S. A., Guedes, E. F., Ferreira, P., Dionísio, A., & Zebende, G. F. (2019). ρx,y between open-close stock markets. Physica A: Statistical Mechanics and Its Applications. https://doi.org/10.1016/j.physa.2019.122152
Dias, R., da Silva, J. V., & Dionísio, A. (2019). Financial markets of the LAC region: Does the crisis influence the financial integration? International Review of Financial Analysis, 63(February), 160–173. https://doi.org/10.1016/j.irfa.2019.02.008
Dias, R., Teixeira, N., Machova, V., Pardal, P., Horak, J., & Vochozka, M. (2020). Random walks and market efficiency tests: Evidence on US, Chinese and European capital markets within the context of the global Covid-19 pandemic. Oeconomia Copernicana, 11(4). https://doi.org/10.24136/OC.2020.024
Dias, Rui, Heliodoro, P., & Alexandre, P. (2019). Risk transmission among stock markets in LAC Region: financial crises impact, 91–97.
Dias, Rui, Heliodoro, P., Alexandre, P., Santos, H., & Farinha, A. (2021). Long memory in stock returns: Evidence from the Eastern European markets. SHS Web of Conferences, 91. https://doi.org/10.1051/shsconf/20219101029
Dias, Rui, Heliodoro, P., Alexandre, P., & Vasco, C. (2020a). FINANCIAL MARKET INTEGRATION OF ASEAN-5 WITH CHINA: AN ECONOPHYSICS APPROACH. In 4th EMAN Conference Proceedings (part of EMAN conference collection) (pp. 17–23). https://doi.org/10.31410/eman.2020.17
Dias, Rui, Heliodoro, P., Alexandre, P., & Vasco, C. (2020b). The shocks between oil market to the bric stock markets: A generalized VAR approach, 25–31.
Dias, Rui, Heliodoro, P., Teixeira, N., & Godinho, T. (2020). Testing the Weak Form of Efficient Market Hypothesis: Empirical Evidence from Equity Markets. International Journal of Accounting, Finance and Risk Management, 5(1), 40. https://doi.org/10.11648/j.ijafrm.20200501.14
Dias, Rui, & Pereira, J. M. (2021). The Impact of the COVID-19 Pandemic on Stock Markets. International Journal of Entrepreneurship and Governance in Cognitive Cities, 1(2), 57–70. https://doi.org/10.4018/ijegcc.2020070105
Ferreira, P., & Dionísio, A. (2014). Revisiting serial dependence in the stock markets of the G7 countries, Portugal, Spain and Greece. Applied Financial Economics, 24(5), 319–331. https://doi.org/10.1080/09603107.2013.875106
Ferreira, P., & Dionísio, A. (2016). How long is the memory of the US stock market? Physica A: Statistical Mechanics and Its Applications, 451, 502–506. https://doi.org/10.1016/j.physa.2016.01.080
G.Sudha, V.Sornaganesh, M. T. S. (2020). IMPACT OF INDIAN STOCK MARKET DUE TO CRISIS IN MARCH 2020. International Journal of Multidisciplinary Educational Research.
Gregory, A. W., & Hansen, B. E. (1996). Residual-based tests for cointegration in models with regime shifts. Journal of Econometrics, 70(1), 99–126. https://doi.org/10.1016/0304-4076(69)41685-7
Guedes, E. F., Brito, A. A., Oliveira Filho, F. M., Fernandez, B. F., de Castro, A. P. N., da Silva Filho, A. M., & Zebende, G. F. (2018). Statistical test for ΔρDCCA: Methods and data. Data in Brief. https://doi.org/10.1016/j.dib.2018.03.080
Guedes, E. F., Ferreira, P., Dionísio, A., & Zebende, G. F. (2019). An econophysics approach to study the effect of BREXIT referendum on European Union stock markets. Physica A: Statistical Mechanics and Its Applications. https://doi.org/10.1016/j.physa.2019.04.132
Gupta, R., & Basu, P. K. (2011). Weak Form Efficiency In Indian Stock Markets. International Business & Economics Research Journal (IBER). https://doi.org/10.19030/iber.v6i3.3353
He, Q., Liu, J., Wang, S., & Yu, J. (2020). The impact of COVID-19 on stock markets. Economic and Political Studies. https://doi.org/10.1080/20954816.2020.1757570
Heliodoro, P., Dias, R., & Alexandre, P. (2020). Financial Contagion Between the Us and Emerging Markets: Covid-19 Pandemic Case. 4th EMAN Selected Papers (Part of EMAN Conference Collection), 1–9. https://doi.org/10.31410/eman.s.p.2020.1
Jarque, C. M., & Bera, A. K. (1980). Efficient tests for normality, homoscedasticity and serial independence of regression residuals. Economics Letters, 6(3), 255–259. https://doi.org/10.1016/0165-1765(80)90024-5
Kanno, M. (2020). Risk Contagion of Covid-19 on Japanese Stock Market: A Network Approach. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3599609
Lahmiri, S., & Bekiros, S. (2020). The impact of COVID-19 pandemic upon stability and sequential irregularity of equity and cryptocurrency markets. Chaos, Solitons and Fractals. https://doi.org/10.1016/j.chaos.2020.109936
Lawrence H. Summers. (1986). Does the stock market rationally reflect fundamental values? The Journal of Finance. https://doi.org/10.2307/2328487
Mensi, W., Tiwari, A. K., & Yoon, S. M. (2017). Global financial crisis and weak-form efficiency of Islamic sectoral stock markets: An MF-DFA analysis. Physica A: Statistical Mechanics and Its Applications. https://doi.org/10.1016/j.physa.2016.12.034
Peng, C. K., Buldyrev, S. V., Havlin, S., Simons, M., Stanley, H. E., & Goldberger, A. L. (1994). Mosaic organization of DNA nucleotides. Physical Review E, 49(2), 1685–1689. https://doi.org/10.1103/PhysRevE.49.1685
Podobnik, B., & Stanley, H. E. (2008). Detrended cross-correlation analysis: A new method for analyzing two nonstationary time series. Physical Review Letters, 100(8). https://doi.org/10.1103/PhysRevLett.100.084102
Rehan, R., Zehra, I., Chhapra, I. U., & Makhija, P. (2019). The relationship between exchange rate and stock prices in South Asian countries. International Journal of Innovation, Creativity and Change.
Rehman, S., Chhapra, I. U., Kashif, M., & Rehan, R. (2018). Are Stock Prices a Random Walk? An Empirical Evidence of Asian Stock Markets. ETIKONOMI. https://doi.org/10.15408/etk.v17i2.7102
Rounaghi, M. M., & Nassir Zadeh, F. (2016). Investigation of market efficiency and Financial Stability between S&P 500 and London Stock Exchange: Monthly and yearly Forecasting of Time Series Stock Returns using ARMA model. Physica A: Statistical Mechanics and Its Applications. https://doi.org/10.1016/j.physa.2016.03.006
Sensoy, A., & Tabak, B. M. (2015). Time-varying long term memory in the European Union stock markets. Physica A: Statistical Mechanics and Its Applications. https://doi.org/10.1016/j.physa.2015.05.034
Shirvani, H., & Delcoure, N. V. (2016). The random walk in the stock prices of 18 OECD countries: Some robust panel-based integration and cointegration tests. Journal of Economic Studies. https://doi.org/10.1108/JES-03-2015-0053
Wang, W., & Enilov, M. (2020). The Global Impact of COVID-19 on Financial Markets. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3588021
Zebende, G. F. (2011). DCCA cross-correlation coefficient: Quantifying level of cross-correlation. Physica A: Statistical Mechanics and Its Applications, 390(4), 614–618. https://doi.org/10.1016/j.physa.2010.10.022
Zivot, E., & Andrews, D. W. K. (1992). Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis. Journal of Business & Economic Statistics, 10(3), 251–270. https://doi.org/10.1198/073500102753410372