Stock Market Anomalies for Companies Listed on the National Stock Exchange of Australia

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Borromeo, John (2018) Stock Market Anomalies for Companies Listed on the National Stock Exchange of Australia. Other Degree thesis, Victoria University.

Abstract

Purpose – Many theoretical financial theories attempt to explain the behaviour of stocks and the structure of their returns, namely the Portfolio Theory, the Capital Asset Pricing Model (CAPM), the Efficient Market Hypothesis (EMH), and Behavioural Finance. These theories, however, have provided incomplete and contradictory explanations regarding stock market anomalies. The aim of this research is to analyse the theory of anomalies and develop a comprehensive theoretical model based on the extant financial theories to develop an improved explanation about stock market anomalies. The principal aim of the current research is to examine the presence of several anomalies, covering macroeconomic, calendar and event variables, in a secondary stock market within Australia, namely the National Stock Exchange of Australia (NSXA), and a number of the sub-indices contained within this stock market. Design/methodology/approach – This research empirically tests the efficiency of the NSXA. The role played by each of the following independent variables is examined by applying specific statistical techniques: long and short-term interest rates; exchange rates; day of the week; weekends; months of the year; turn of the calendar year, January, turns of the month; Australian end of financial year; Australian federal election, US presidential election and sporting events Findings – The results are interesting and contradict with the existing research. Though the empirical analyse yields statistically significant results for some hypothesis and not for others, the research finds that: a clear interest rate effect for both short and longterm interest rates; an observable and strong monthly effect and suggestive relationship between the NSX Resources sub-indices and Australian federal elections. Research limitations/implications – the main limitations of the research related to: 1) the particularity of investors in the NSXA falls out of the scope of this study, they may provide further insight as to why the anomalous behaviour was observed; 2) difficulty quantifying the physical location of the companies listed on the exchange as knowledge of this may have been supportive in explaining trading patterns and anomalous behaviour and 3) the impact of market capitalization and firm size was not considered due to a lack of available data. Future research may want to incorporate firm size when undertaking analysis to determine if a relationship exists between company size and anomalies. The main implication of the research is that there is only partial confirmation for the validity of the EMH. While the EMH is not rejected in each of the tests undertaken, the fact that some anomalies are observed implies that the EMH cannot be seen as an all-encompassing theory of how stock markets operate or behave. The current research raises the concept of segmented market efficiency. Practical implications – This research indicates that the NSXA does exhibit several specific anomalies. The presence of such anomalies provides investors with greater knowledge which can be used to maximise financial returns, in both the medium and long term, by improving decisions relating to the timing of stock investment. Originality/value – To the researcher’s best knowledge the focus of stock market anomalies in an Australian context has been exclusively to examine the Australian Stock Exchange (ASX). This is the first study to focus on a "secondary" smaller, less well recognised stock market, the NSXA. Additionally, this is the first study to consider economic, calendar and event variables in an integrated model to provide an improved explanation of stock anomalies.

Additional Information

Doctorate of Business Administration

Item type Thesis (Other Degree thesis)
URI https://vuir.vu.edu.au/id/eprint/38627
Subjects Current > FOR Classification > 1402 Applied Economics
Current > FOR Classification > 1502 Banking, Finance and Investment
Current > Division/Research > College of Law and Justice
Keywords stock markets; financial theories; Australia; National Stock Exchange of Australia; NSXA; interest rates; federal election; months; stock investment; efficient market hypthesis; EMH
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