Daily abnormal returns and price effects in the “passion investments” market
-
DOIhttp://dx.doi.org/10.21511/imfi.18(4).2021.13
-
Article InfoVolume 18 2021, Issue #4, pp. 141-149
- 546 Views
-
185 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This paper explores price effects in the “passion investments” market after days with abnormal returns. To do this, daily prices for stamps and diamonds over the periods 1999–2021 and 1989–2021 are analyzed. The following hypothesis is tested: One-day abnormal returns create stable patterns in price behavior on the next day. Statistic tests (t-test, ANOVA, Mann–Whitney U test, modified cumulative abnormal returns approach, regression analysis with dummy variables) confirm the presence of price patterns related to extreme returns: price fluctuations on the day after extreme returns are higher than returns on “normal” days. On the days after positive abnormal returns, the momentum effect is detected. Contrarian effect is typical for the days after negative abnormal returns. A trading strategy based on detected price effects showed the presence of exploitable profit opportunities. Results of this paper provide additional pieces of evidence in favor of inconsistencies between the efficient market hypothesis and practice and can be used by traders to generate extra profits in the “passion investments” market.
Acknowledgment
The authors gratefully acknowledge financial support from the Ministry of Education and Science of Ukraine (0121U100473).
- Keywords
-
JEL Classification (Paper profile tab)G12, G17, C63
-
References39
-
Tables8
-
Figures2
-
- Figure 1. Visual (average) analysis of returns on ordinary days and days with abnormal returns (the case of stamps and diamonds)
- Figure 2. Visual interpretation of trading simulation results (the case of stamps and diamonds)
-
- Table 1. Results of a trading strategy based on detected price patterns
- Table 2. Summary of results for the stamps and diamonds: The case of negative and positive returns
- Table A1. Average analysis of returns on usual days and days after abnormal returns: The case of stamps and diamonds
- Table A2. T-test
- Table A3. ANOVA test
- Table A4. Mann–Whitney U test
- Table A5. Regression analysis with dummy variables*
- Table A6. Modified CAR approach*
-
- Auer, B. R. (2014). Could Diamonds Become an Investors Best Friend? Review of Managerial Science, 8, 351-383.
- Auer, B. R., & Schuhmacher, F. (2013). Diamonds – A Precious New Asset? International Review of Financial Analysis, 28, 182-189.
- Beccacece, F., & Cantu, V. (2015). Enhancing Portfolio Diversification: Are Diamonds Forever? The Journal of Investing, 24(4), 92-101.
- Bouri, E., Chang, T., & Gupta, R. (2017). Testing the Efficiency of the Wine Market Using Unit Root Tests with Sharp and Smooth Breaks. Wine Economics and Policy, 6(2), 80-87.
- Bouri, E., Gupta, R., Wong, W. K., & Zhu, Z. (2018). Is Wine a Good Choice for Investment? Pacific-Basin Finance Journal, 51, 171-183.
- Bremer, M., & Sweeney, R. J. (1991). The reversal of large stock price decreases. Journal of Finance, 46(2), 747-754.
- Caporale, G. M., & Plastun, A. (2020a). Daily abnormal price changes and trading strategies in the FOREX. Journal of Economic Studies, 48(1), 211-222.
- Caporale, G. M., & Plastun, A. (2020b). Momentum effects in the cryptocurrency market after one-day abnormal returns. Financial Markets and Portfolio Management, 34, 251-266.
- Caporale, G. M., & Plastun, A. (2021). Gold and oil prices: abnormal returns, momentum and contrarian effects. Financial Markets and Portfolio Management, 35, 353-368.
- Cardebat, J.-M., & Jiao, L. (2018). The Long-term Financial Drivers of Fine Wine Prices: The Role of Emerging Markets. The Quarterly Review of Economics and Finance, 67, 347-361.
- Choi, H.-S., & Jayaraman, N. (2009). Is reversal of large stock-price declines caused by overreaction or information asymmetry: Evidence from stock and option markets. Journal of Future Markets, 29(4), 348-376.
- Chu, P. K. K. (2014). Study on the Diversification Ability of Fine Wine Investment. The Journal of Investing, 23(1), 123-139.
- Cutler, D., Poterba, J., & Summers, L. (1991). Speculative dynamics. The Review of Economics Studies, 58(3), 529-546.
- David, G., Oosterlinck, K., & Szafarz, A. (2013). Art Market Inefficiency. Economic Letters, 121(1), 23-25.
- De Bondt, W., & Thaler, R. (1985). Does the Stock Market Overreact? Journal of Finance, 40(3), 793-805.
- Diamond Search Engine. (n.d.). Home Page.
- Dimson, E., & Spaenjers, C. (2011). Expost: the Investment Performance of Collectible Stamps. Journal of Financial Economics, 100(2), 443-458.
- Dimson, E., Rousseau, P. L., & Spaenjers, C. (2015). The price of wine. Journal of Financial Economics, 118(2), 431-449.
- D’Ortona, N. E., Marcarelli, G., & Melisi, G. (2020). Loss portfolio transfer treaties within Solvency II capital system: a reinsurer’s point of view. Insurance Markets and Companies, 11(1), 1-10.
- Erdős, P., & Ormos, M. (2013). Components of Investment Grade Wine Prices. Journal of Wine Research, 24(3), 227-247.
- Faye, B., Le Fur, E., & Prat, S. (2015). Dynamics of Fine Wine and Asset Prices: Evidence from Short- and Long-run Co-movements. Applied Economics, 47(29), 3059-3077.
- Fernandez-Perez, A., Frijns, B., Tourani-Rad, A., & Weisskopf, J.-P. (2019). Behavioural Heterogeneity in Wine Investments. Applied Economics, 51(30), 3236-3255.
- Fischer, B. H., & Firer, C. (1985). The Risk/Return Characteristics of the Postage Stamp Market. Investment Analysts Journal, 14(26), 31-43.
- Gintarė, P., & Stankevičienė, J. (2021). Assessing statistical link between FinTech PEST environment and achievement of SDGs. Public and Municipal Finance, 10(1), 47-66.
- Goetzmann, W. N. (1995). The Informational Efficiency of the Art Market. Managerial Finance, 21(6), 25-34.
- Grable, J. E., & Chen, X. (2015). Collectible, Investment, or Both: Evaluating the Attractiveness of Collectible Stamps. Journal of Financial Service Professionals, 69(5), 78-87.
- Lean, H., & Chong, C. (2012). Calendar Anomalies and Risk in the Wine Exchange Market. Asian Academy of Management Journal of Accounting and Financing, 8(1), 25-39.
- Low, R.K.Y., Yao, Y., & Faff, R. (2016). Diamonds vs. Precious Metals: What shines brightest in your investment portfolio? International Review of Financial Analysis, 43, 1-14.
- Lucey, B. M., & Devine, L. (2015). Was wine a premier cru investment? Research in International Business and Finance, 34, 33-51.
- MacKinlay, A. (1997). Event Studies in Economics and Finance. Journal of Economic Literature, 35, 13-39.
- Masset, P., & Henderson, C. (2010). Wine as an Alternative Asset Class. Journal of Wine Economics, 5(1), 87-118.
- Masset, P., & Weisskopf, J.-P. (2018). Raise Your Glass: Wine Investment and the Financial Crisis. In World Scientific Reference on Handbook of the Economics of Wine (pp. 271-295).
- Mei, J., & Moses, M. (2002). Art as an Investment and the Underperformance of Masterpieces. American Economic Review, 92(5), 1656-1668.
- Renneboog, L. (2015). Investing in Diamonds. Business and Economic Research, 5(1), 166-195.
- Renneboog, L., & Spaenjers, C. (2013). Buying Beauty: On Prices and Returns in the Art Market. Management Science, 59(1), 36-53.
- Scott, F., & Yelowitz, A. (2010). Pricing Anomalies in the Market for Diamonds: Evidence of Conformist Behavior. Economic Inquiry, 48(2), 353-368.
- Small, K., Smith, J., & Small, E. (2013). The Return Characteristics of Diamonds. Journal of Investing, 22(1), 132-143.
- Stanley Gibbons Group. (n.d.). Gibbons Stamp Monthly.
- Worthington, A. C., & Higgs, H. (2003). Art as an Investment: Short and Long-term Comovements in Major Painting Markets. Empirical Economics, 28(4), 649-668.