Four essays in the theory of efficient market hypothesis and Credit risk

Abstract

This thesis is a compilation of four essays that are based on two themes of literature in finance such as efficient market hypothesis and credit risk in the area of banking. These newlinefour essays are represented as the relevant essays in the thesis. newline newlineThe first three essays, Can trade opportunities and returns be generated in a Trend Persistent series? Evidence from Global Indices , Does application of a Rolling Range newlineto Standard Deviation filter enhance returns under JT momentum strategies? and Identifying periods of market inefficiency for return predictability are based on the efficient market hypothesis (EMH) theory in finance. Under EMH, stock prices reflect the full information about the stock and market participants are unable to predict stock prices. However, Campbell (1987) suggested that stock markets do not remain efficient newlinethroughout and face periods of relative efficiency and inefficiency. This concept of relative efficiency meant that markets oscillated between periods of efficiency and inefficiency. During periods of inefficiency market participants could identify arbitrage opportunities in the form of patterns such as trends or auto correlations in the price data. newline newlineTrends meant that stock prices followed a certain direction over subsequent periods and newlinemarket participants could exploit these trends through trading rules. Trading rules were newlinebased on the direction followed by the stock prices in the past and the stock prices were newlineexpected to follow the same direction in the near future. However, as market participants exploited these patterns in the stock prices the market moved towards relative efficiency. The three essays explore whether investors can exploit profitability and arbitrage opportunities across stock indices based on the market inefficiency that exists in the stock market in the form of patterns such as auto correlations and trends that exist in the stock returns. newline newlineThe first three essays, Can trade opportunities and returns be generated in a Trend Persistent series?