Objective: To understand 1) the meaning and implications behind anomaly and market efficiency and 2) the latest research and practical challenges of financialtheory and practicethrough the surveyof...

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Objective: To understand 1) the meaning and implications behind anomaly and market efficiency and 2) the latest research and practical challenges of financialtheory and practicethrough the surveyof one particular financial market anomaly. Description: Assume that you are employedas an analyst for one of the leading investment banks and that you have been asked to explain one financial market anomalyfor one of its clients. You can choose ANY anomalyfrom the literature(such as the size effect, the turn-of-the-year effect, the weekend effect, the value effect, orthe momentum effect.See the survey provided by G. WilliamSchwert (2003) for a start: http://schwert.ssb.rochester.edu/hbfech15.htm). Assessment TypeWord LengthPercentage (%) counting towards overall module markDate Assessment commencesAssignment Deadline Return date and nature of feedbackIndividual CourseworkMaximum of 8 pages50%8 October, 201212November,2012, 15.00htbc
2Please preparea detailed report which should answer ALLthe following questions:1.Describe the market anomaly of your choice (its definition, pattern, when and where was it documented for the first time).2.How doesthis market anomaly influence market efficiency?3.What are the possible reasons behind this market anomaly(behavioural-and risk-based theories in literature)?4.Why does this market anomalymatter to both academics and practitioners?5.What happens to this market anomaly now(does it persist, disappear, reverse, or weaken following their discovery)?Your report should also meet ALLthe following requirements:1.Itshould not exceed 8 pagesin total(font in Times New Roman, 12ptfont size, 2.5cm page margins for left, right, top, and bottom);2.It should include at least 10referencesthat are papers publishedin peer-reviewed academicjournals (see the appendix for the finance journal list). 3.The deadline for submission is Monday,12thNovember 2012at 3pm (15.00h).Important pointsto consider(see also https://intranet.uea.ac.uk/learningandteaching/coursework)?This coursework counts for 50% of the assessment in this module.?Please preserve anonymity by using your university number, notyour name.?Your coursework should clearly distinguish between your original words and ideas, and those of others. When referring to the work of others, from books, journals or any other source (including the internet), it is essential that you make this clear by acknowledging your source and referencing correctly. Failure to reference correctly will lose you marks and may constitute plagiarism or collusion. Norwich Business School uses the Harvard system of referencing(see the student handbook for details).?It is important that you avoid plagiarism and collusion. You must be fully aware of the relevant UEA rules and regulations can be found atthe student handbookand:http://www.uea.ac.uk/services/students/let_service/let_plagiarism_aware/plagiarism_students?There shall be no deduction of marks or other penalty where an item of coursework otherwise does not meet the expected word length. However, it is important to remember that failing to provide sufficient material, producing material that lacks focus or including material that is irrelevant will probably result in alower mark on the basis of the lack of academic merit of the work submitted.?In preparing your coursework, you should be aware that you will be assessed by reference to the extent to which your report meets thecriteriain the UEA LONDON COURSEWORK COVERSHEET.
3Appendix: the finance journal listABS GradeJournal TitleGrade FourJournal of Finance Review of Financial Studies Journal of Financial and Quantitative AnalysisJournal of Financial EconomicsJournal of Money, Credit and BankingGrade ThreeJournal of Financial IntermediationJournal of Banking and FinanceJournal of Corporate FinanceMathematical FinanceFinancial Management (USA)Journal of International Money and FinanceReview of Finance (formerly European Finance Review)Finance and StochasticsEuropean Financial ManagementFinancial Analysts JournalJournal of Business Finance and AccountingJournal of Financial MarketsJournal of Futures MarketsEuropean Journal of FinanceJournal of International Financial Markets, Institutions and Money Journal of Empirical FinanceInternational Review of Financial AnalysisJournal of Financial ResearchReview of Quantitative Finance and AccountingFinancial Markets, Institutions and InstrumentsJournal of Financial Services ResearchFinancial ReviewGrade TwoJournal of International Financial Management and AccountingInsurance, Mathematics and EconomicsJournal of Risk and InsuranceASTIN Bulletin: Journal of International Actuarial AssociationQuantitative FinanceInternational Journal of Finance and EconomicsInternational Tax and Public FinanceJournal of Real Estate Finance and EconomicsJournal of Portfolio ManagementGeneva Papers on Risk and Insurance: Issues and PracticeApplied Financial EconomicsInternational Journal of Theoretical and Applied FinanceIntelligent Systems in Accounting, Finance and ManagementJournal of Multinational Financial ManagementGlobal Finance JournalJournal of Applied Corporate FinanceReview of Derivatives ResearchPacific-Basin Finance JournalJournal of DerivativesMultinational Finance JournalJournal of Asset ManagementResearch in International Business and FinanceJournal of Emerging Market Finance
Answered Same DayDec 21, 2021

Answer To: Objective: To understand 1) the meaning and implications behind anomaly and market efficiency and 2)...

David answered on Dec 21 2021
120 Votes
Introduction:
The market efficiency suggests that markets are rational and the price of securities reflect
according to all available information. The investors take actions timely and price of securities
quickly adjust according to the new information. Thus, investors cannot beat the market in order
to generating abnormal ret
urn. But it is predicated that many stock markets are not following the
rule of Market Efficiency Hypothesis. The function of stock markets is different than the rule of
market efficiency and this deviation is called anomalies. The anomalies could occur once and
disappear or it could be occur repeatedly. This paper discusses the occurrence of anomalies with
evidences from the US stock exchange. The market anomalies are in the smooth pattern of stock
market and it exits in different stock exchanges of the world (Ariel 1984).
Financial Market Anomalies:
The anomaly can be said as an unusual occurrence. It is scientific and technical matters.
According to George & Elton (2001), “the market anomaly is defined as irregularities and
deviation from an exceptional condition, a surprise or unexpected phenomenon with respect to
the market theory such as efficiency of market and CAPM model”.
Anomalies are occurred once and disappear and some anomalies are occurring continuously. It is
a condition of inefficient market. According to the standard finance theory, “anomaly is a
condition under which the performances of stocks are different than the assumptions of efficient
market hypothesis”. Some events that cannot be explained by the efficient market theory are
called anomalies (Silver 2011). Fama (1970) noted the anomalies at the time of pointing out the
market efficiency, equilibrium and expected return. Their findings conclude the market
inefficiency and it is also an evidence of inadequacy of Asset-Pricing Model.
Effect on market efficiency:
The stock market anomalies effect the market efficiency because, it is opposite of the theory of
market efficiency. The market efficiency refers that the prices of securities reflect according to
the new information available to the investors. The efficient markets can be in three different
forms, in a weak form, all information is already reflected in the current prices of stocks or stock
prices moves randomly. Thus, in the weak form, no investor can beat the price of securities and
can get abnormal return. In the semi strong form of market efficiency, investors cannot make
abnormal profit on the basis of fundamental analysis. In the strong form of market efficiency, the
stock prices are fully reflected by the all information available thus, no one can beat the prices
even by insider trading. Some evidences of market anomalies are as under:
The Momentum Effect:
According to the study of momentum effect, the investors can gain abnormal return by using the
strategy of momentum effect. They sell the past loser stocks and buy the past gainer stocks
(Hons & Tonks 2001). Hons and Tonks observed that past gainer stocks’ returns are higher than
the past loser’s stocks because, the past gainer stocks are risky than past loser stocks. It is a
positive correlative strategy only for a short-period of time. The momentum effects can be seen
especially in January because of buying...
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