Market efficiency between Investment Banks and Commercial Banks in Financial Crisis

• Main Authors: Chia-Li Lin, 林佳莉
• Other Authors: Yong-Chern Su
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/65060208846939390571

碩士 === 臺灣大學 === 財務金融學研究所 === 98 === Market efficiency, one of the most important concepts in finance field, has been the controversial issue these years. This is because there are a lot of empirical anomalies happening in real world such as small firm effect, and January effect. It is intuitive that efficiency cannot happen instantaneously in the real world. Because the information does not spread so quickly that everyone cannot obtain it at the same time. As a result, one may gain abnormal profits. However, this situation will not persist too long. The strength of various kinds of investors will push the market toward efficiency. Therefore, the goal of our study is to investigate the convergence process toward efficiency of the relation between the order imbalances of investment banks and the returns of commercial banks. First of all, we examine the relation between returns and contemporaneous as well as lagged order imbalances by a multi-regression model. The empirical result shows that the contemporaneous imbalances have a significantly positive impact on returns, and condition on the contemporaneous imbalances, the impact of the lagged-one imbalances on returns is negative. Disregarding the contemporaneous imbalances, there are obviously large figures of negative and significant coefficients at the 10% significant level for the three time intervals. Besides, we observe a positive relation between contemporaneous imbalances and returns by the use of a GARCH(1,1) model. And both in the multi-regression model and the GARCH(1,1) model, the convergence process toward efficiency is observable. Moreover, we us a GARCH(1,1) model to examine the relation between volatility and order imbalances. The results come out to be not significant. Our explanation is that market makers have great abilities to control inventories. Finally, we build a trading strategy based on the indicator of order imbalances. Our trading strategies cannot neither yield statistically significant positive returns nor outperform original daily returns.