Calendar effects, market conditions and the Adaptive Market Hypothesis: Evidence from long-run U.S. data

Urquhart, Andrew; McGroarty, Frank

doi:10.1016/j.irfa.2014.08.003

Cited by 117 publications

(103 citation statements)

References 56 publications

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“…Lo (2005) argues that convergence to equilibrium is neither guaranteed nor likely to occur and that it is incorrect to assume that the market must move towards some ideal state of efficiency. The AMH has gained quite a lot of attention in the recent literature such as Kim, Shamsuddin, and Lim (2011), Urquhart and Hudson (2013), Urquhart and McGroarty (2014), and Hiremath and Narayan (2016). 2 Since the original paper by Gatev et al (2006), the literature has expanded, but the issue of cross-border pairs trading is not well developed.…”

Section: Introductionmentioning

confidence: 99%

Pairs trading across Mainland China and Hong Kong stock markets

Zhang

Urquhart

2018

Int. J Fin Econ

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Motivated by the rationale that market inefficiency arises from a combination of less than fully rational demand and limits to arbitrage, this paper investigates the profitability of pairs trading across Mainland China and Hong Kong on highly liquid large‐cap and midcap stocks from January 1996 to July 2017. We have three main findings. First, we find that pairs trading constrained within each market generates no significant abnormal returns. However, if investors can trade across Mainland China and Hong Kong, pairs trading is profitable after adjusting for risk and transaction costs, where the annualized abnormal return is 9% over the full sample. Second, by using a rolling‐window regression, we find that the profitability of the strategy is time‐varying. The bootstrap simulations suggest that the decline in profitability of the strategy since 2012 is due to random chance rather than poor ability of identifying mispriced stocks. However, the vast majority of profitable periods reflect the strategy's ability to choose profitable stocks rather than random chance. Third, the profitability of the strategy is somewhat sensitive to market conditions, most notably, the strategy is more profitable during longer term market turbulence. Overall, our empirical findings are consistent with the Adaptive Market Hypothesis in that the integration of financial markets and market conditions determine the level of market efficiency.

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Section: Introductionmentioning

confidence: 99%

Pairs trading across Mainland China and Hong Kong stock markets

Zhang

Urquhart

2018

Int. J Fin Econ

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“…This assumption is a very strong one in a highly volatile market where structural changes might happen over time. Adaptive market hypothesis offers some sort of explanation to the calendar anomalies (Urquhart and McGroarty, 2014), but the theoretical foundation of those persisting calendar effects is still not clear.…”

Section: Discussionmentioning

confidence: 99%

Multidimensional Analysis of Monthly Stock Market Returns

Gulseven

2014

Annals of the Alexandru Ioan Cuza University - Economics

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“…Therefore, in this section, we provide a review of Urquhart and McGroarty (2014) to understand whether a simple trading strategy for each calendar anomaly can earn excess returns to the investors. They examine the Adaptive Market Hypothesis (AMH) through Monday effect, the January effect, and the TOM effect in Dow Jones Industrial Average (DJIA) from 1900-2013.…”

Section: Practical Implications -Can These Calendar Anomalies Be Traded?mentioning

confidence: 99%

“…This strategy is continued until December 31, 2013 where the portfolio would be liquidated. Source: Urquhart and McGroarty (2014) The results of Urquhart and McGroarty (2014) are presented in Table 2 for the full sample as well as the 6 subsample of equal length each. Panel A shows that for Monday effect, the investment strategy outperforms the buy-and-hold strategy even after controlling for 0.30% transaction cost.…”

Section: Table1mentioning

confidence: 99%