Three essays on international markets efficiency
Description
The objective of this study is to test for market efficiency in the Mexican stock market as well as for multi-market efficiency among the U.S., the U.K., and the Mexican stock markets. We use as a sample the returns of Mexican stocks traded both in the Mexican stock market and overseas through Depositary Receipts (DRs), ADRs in the case of stocks traded in the U.S., and GDRs in the case of the stocks traded in U.K., and the stock market index for each stock market This dissertation consists of three essays. The first essay tests for the existence of the January effect in the Mexican stock market, and studies whether tax regulation differences between Mexico and the U.S. explain the presence or absence of the January effect. We found no evidence of the January effect, being the results a support for a tax related hypothesis The second essay analyzes market return behavior around holidays and the efficiency of information transfer around closing days. The holiday effect was not evident in the period of study. We studied whether the non-evidence of the holiday effect was due to the absence of this anomaly in the Mexican stock market, or to the transfer of information process among stock markets. However, we found that causality existed among the Mexican portfolios, implying multi-market inefficiency The third essay studies whether information arising in the Mexican stock market is appropriately included in the prices of the Mexican DRs. It also focuses on causality among the Mexican, the U.S, and the U.K. stock market returns, and among the Mexican stock portfolios and the Mexican DR portfolios returns. We found that the U.S. market had influence on the Mexican and on the U.K. markets. We found evidence of causality among the portfolios, which helped us to identify the feasibility of exploiting this form of market inefficiency. After we estimated portfolio returns for three and six month periods, we found that profits could be obtained from trading strategies; however, when we considered transaction costs in the trading strategies, those profits disappeared