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This paper examines if investors exhibited evidence of the availability heuristic in their investment decisions when significant price changes occurred in the British stock market during the 2010–2018 period. We raise the hypothesis that if a significant stock price move takes place on a day when the stock market index also undergoes a significant change (either positive or negative), then the magnitude of that shock may be increased by the availability of positive investment or negative outcomes. We applied three different proxies for large stock price changes which yielded a robust sample of events for this study. We found no significant evidence of the availability heuristic. In addition, we also found no significant evidence of price overreaction for both price decreases and increases. Inversely, we found robust results that suggest randomness in the behavior of stock prices in this period, thus supporting the efficiency of financial markets and opposing the results from similar studies carried out in the United States. [ABSTRACT FROM AUTHOR]

In the last decades, a large number of multifactor assetpricing models have emerged with the aim of correcting the estimated equity risk premiums for some well‐documented market anomalies. In any case, recent research on asset pricing shows how the higher liquidity resulting from the globalization of financial markets has significantly reduced returns tied to many strategies based on market anomalies. In this framework, questions arise about the possible renovated validity of classic assetpricing models. On this basis, in this paper we study to what extent the capital assetpricing model (CAPM) has recovered its past explanatory power. Specifically, we propose a time‐varying beta CAPM in order to control for the variable nature of beta risk to changes in the market liquidity, using the variation of the Amihud illiquidity measure to account for the degree of trading activity. We test both the time‐varying and constant beta models on different sets of anomaly portfolios for the UK equity market, and we compare their performance to that of the Fama–French three‐ and five‐factor models. Additionally, we test the constant beta model on a set of actively managed portfolios, formed according to the variation in market illiquidity in the previous year. Our results show that the pricing errors of the CAPM have significantly decreased with respect to those of previous literature. Furthermore, the time‐varying beta model performs similarly to the Fama–French models in most cases. These results are consistent with increased trading activity that reduces arbitrage opportunities and, therefore, enhances market efficiency. [ABSTRACT FROM AUTHOR]

This paper examines two potential key drivers of the financial strength (F-Score) investment strategy: information uncertainty and liquidity. We use novel, direct measures of information uncertainty related to the variability of financial strength signals themselves. However, financial strength strategy returns are not generally strongly related to these information uncertainty proxies. We also examine two proxies for liquidity. Financial strength strategy returns are generally substantially larger for illiquid firms. A zero-cost arbitrage strategy based on F-Score generates a 20% return in illiquid UK stocks and 12% in liquid UK stocks. The enhanced F-Score effect is driven by a flight from illiquidity amongst financially weak stocks. Overall, the profitability of the F-Score investment strategy appears more closely related to liquidity than to information uncertainty. [ABSTRACT FROM AUTHOR]

We analyze the auto-correlations of all European Union (EU) indices and the cross-correlation between the UK stock market and the other EU markets. This analysis took into account the BREXIT referendum, on the 23rd of June 2016 and the entire period was partitioned in two periods, before and after the BREXIT referendum. First of all, we applied the Detrended Fluctuation Analysis method (with the regular and with a sliding windows approach) in order to evaluate market efficiency. In this case, we found that in general the referendum did not change efficiency levels significantly. With the main purpose of measuring the markets interdependence in relation to the UK index, following the referendum, we calculated the Δ ρ D C C A coefficient. Our results point to a decrease in the cross-correlation coefficient (Δ ρ D C C A < 0), meaning that the UK is more segmented now, in relation to other EU partners, than in the past. With Δ ρ D C C A it was possible to identify how much the referendum influenced the interdependence, but not the efficiency, of European markets. • The BREXIT referendum is study by DFA method for the Euro zone. • In general, the referendum did not change efficiency levels significantly. • We also calculated the Δ ρ D C C A coefficient, and our results point to Δ ρ D C C A < 0. • This meaning that the UK is more segmented now than in the past. [ABSTRACT FROM AUTHOR]

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This paper investigates the effect of good or bad news (the asymmetric effect) on the time-varying beta of firms in the UK during good periods (booms) and bad periods (recessions). Daily data from twenty five UK firms of different sizes and from different industries are applied in the empirical tests. The data ranges from 2004 to 2010, which includes the current global financial crisis. The time-varying betas are created by means of the bivariate BEKK GARCH model, and then linear regressions are applied to test for the asymmetric effect of news on the beta. The asymmetric effects are investigated based on both market and non-market shocks. Most firms and industries seem to support the market efficiency hypothesis during both periods. However, the level of market efficiency seems to decline significantly from the pre-crisis to crisis period. Both the results of market efficiency and declining market efficiency from the pre-crisis to crisis periods provide ample evidence of the asymmetric effect of the financial crisis on the beta of UK firms. [ABSTRACT FROM AUTHOR]

This article examines the recent regulatory developments with regard to short selling. Short selling regulation is an important factor in firm governance because it affects the way in which firms are subject to market discipline. As the financial crisis has attracted regulators’ notice to short selling once again, it is important to understand the fundamental legal and economic arguments regarding short selling. These arguments have at their core the question of whether there exists a market failure. The available evidence on balance suggests that short selling restrictions hamper the price discovery process. Also, while regulations against market abuse are required, it is often an ineffective detour to pursue the goal of fair markets through the regulation of short selling. On the basis of these arguments, the article evaluates the approaches taken by the US and UK regulators, who play a leading part in the current movement towards more comprehensive short selling regulation. The US Securities and Exchange Commission's (SEC's) recently adopted rules do not seem to bring much added value and will presumably affect market efficiency in the negative. First principles suggest a somewhat more positive stance on the SEC's proposal for a circuit breaker rule and the UK. Financial Services Authority's proposed disclosure approach, though both are subject to caveats. We also highlight some central questions for future research. [ABSTRACT FROM AUTHOR]

The favourite-longshot bias is estimated for bookmaker odds from 9,006 UK Flat races, and compared to the bias evident in a sample of betting exchange odds from 6,000 races during the same period. The results are compared to similar studies of bias in Tote odds and US pari-mutuel odds. It is suggested that an information model only partially explains variations in the degree of bias between alternative betting media. [ABSTRACT FROM AUTHOR]

Abstract: In this paper we test the hypothesis that bookmakers display superior skills to bettors in predicting the outcome of sporting events by using matched data from traditional bookmaking and person-to-person exchanges. Employing a conditional logistic regression model on horse racing data from the UK we find that, in high liquidity betting markets, betting exchange odds have more predictive value than the corresponding bookmaker odds. To control for potential spillovers between the two markets, we repeat the analysis for cases where prices diverge significantly. Once again, exchange odds yield more valuable information concerning race outcomes than the bookmaker equivalents. [Copyright &y& Elsevier]

This paper investigates the abnormal share return dispersion occurring when companies announce their interim or final earnings. Whereas, prior research has focused on abnormal returns, little attention has been given to investigating the dispersion of the abnormal returns. We find strong empirical evidence supporting an abnormal dispersion of share returns on event dates. Moreover, we find that these public announcements are sources of extreme share price movements. Our study provides a step forward in identifying factors underlying the leptokurtosis that is traditionally found in time series stock market returns. Our data sample is comprised of interim and full year results for mid-to-large capitalisation UK companies for the period 1984-2005. Consistent with the extant literature on this subject, we find no evidence of market inefficiency around the event date, or straightforward arbitrage opportunities on the event date. However, we find using Paretian statistics that the abnormal return dispersion on the event date is three times higher than on normal non-event days. [ABSTRACT FROM AUTHOR]

This paper re-examines the small firm premium in the UK from December 1987 to December 2004 using a new survivorship bias-free and look-ahead bias-free database of the UK market covering stocks officially listed in the UK during this period. Prior research (Dimson, E., and P.R. Marsh. 1987. The Hoare Govett smaller companies index for the UK. Hoare Govett Limited, January; Dimson, E., and P.R. Marsh. 1999. Murphy's law and market anomalies. Journal of Portfolio Management 25, no. 2: 53-69) documented an annual small-size premium in the UK market of around 6% during the period 1955-1986 and an annual small-size discount of 6% during the years 1989-1997. Our results show a continuation of the small firm premium in the UK during 1988-2004 in excess of 7% per year. We conclude that the reversal of the small firm premium documented by Dimson and Marsh (1999. Murphy's law and market anomalies. Journal of Portfolio Management 25, no. 2: 53-69) is dependent on the data sample and methodology used. The main contribution to the 7%+geometric annual premium reported here comes mainly during the years 1993 and 1999. Furthermore, exploitation of the small firm premium depends on the strategy used and in particular on the length of the holding period before rolling over the strategy. Thus, while it can be argued that an economically significant small firm anomaly continues to exist, it appears to be sample-dependent, time-varying and unreliable, and difficult to exploit in practice. [ABSTRACT FROM AUTHOR]

This paper examines the post-cost profitability of momentum trading strategies in the UK over the period 1988–2003 and provides direct evidence on stock concentration, turnover and trading cost associated with the strategy. We find that after factoring out transaction costs the profitability of the momentum strategy disappears for shorter horizons but remains for longer horizons. Indeed, for ranking and holding periods up to 6-months, profitable momentum returns would not be available to most average investors as the cost of implementation outweighs the possible returns. However, we find post-cost profitability for ranking and/or holding periods beyond 6 months as portfolio turnover and its associated cost reduces. We find similar results for a sub-sample of relatively large and liquid stocks. [ABSTRACT FROM AUTHOR]

The UK’s Climate Change Programme introduced an Emissions Trading Scheme (ETS) for greenhouse gases. Firms in over 40 industrial sectors which have negotiated “Climate Change Agreements” setting quantitative energy efficiency targets can use the ETS to trade over-and under-compliance with these targets. In parallel, a limited number of firms have become major participants in the ETS as a result of an auction of subsidies for additional abatement commitments. The paper describes the UK arrangements and assesses the economic efficiency and environmental effectiveness of the ETS, drawing on evidence of participants’ behaviour both in the incentive auction, and in subsequent trading. [ABSTRACT FROM AUTHOR]

The aim in this paper is to replicate and extend the analysis of visual technical patterns by Lo et al. (2000) using data on the UK market. A non-parametric smoother is used to model a nonlinear trend in stock price series. Technical patterns, such as the ‘head-and-shoulders’ pattern, that are characterised by a sequence of turning points are identified in the smoothed data. Statistical tests are used to determine whether returns conditioned on the technical patterns are different from random returns and, in an extension to the analysis of Lo et al. (2000), whether they can outperform a market benchmark return. For the stocks in the FTSE 100 and FTSE 250 indices over the period 1986 to 2001, we find that technical patterns occur with different frequencies to each other and in different relativities to the frequencies found in the US market. Our extended statistical testing indicates that UK stock returns are less influenced by technical patterns than was the case for US stock returns. [ABSTRACT FROM AUTHOR]

There have been three empirical studies examining the share price reaction following trades by directors of UK companies (King and Poell, 1988; Pope, Morris and Peel, 1990; and Gregory, Matatko, Tonks and Pukiss, 1994), All three of these UK studies used different definitions of ‘buy’ and ‘sell’ signals resulting from the transactions of directors and employ different controls to detect the presence of any ‘size effects’. We investigate whether the signal definition explains the different conclusions drawn by these earlier studies, and examine whether or not any observed abnormal returns are explicable by the small companies effect. We also investigate trading strategies based on holding a long portfolio of shares purchased or a short portfolio of shares sold by directors held until the end of the study period or until a ‘reserving event’ (e,g, a sale following a purchase by director[s] is observed). [ABSTRACT FROM AUTHOR]

The manufacturing sector in the UK has been performing rather badly in comparison with its major international competitors. This deterioration in performance can be seen in R&D spending, patenting rates and in market shares, and appears to centre on deficiencies in product innovation. There is general agreement that short-termism is one of the main factors responsible for such poor performance in Britain. Does short-termism arise from pressure in capital markets or is it generate within the firm? The stock market is often blamed for putting inappropriate short-term pressures on management by institutional investor intervention and hostile take-over activity leading to changes in management policy and ultimately to dismissal. On the other hand, it is also argued that the problem of short-termism originates within management itself. The purpose of this paper is therefore to review the relevant literature surrounding the debate on short-termism, to draw conclusions on its likely causes and to provide some suggestions as to how to manage these pressures. [ABSTRACT FROM AUTHOR]