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Efficient Market Hypothesis and Fundamental Analysis: An Empirical Test in the European Securities Market

Author

Listed:
  • Francesco Campanella

    (Department of Economics, Second University of Naples, Corso Gran Priorato di Malta, 1, Capua, Caserta, 81043, ITALY)

  • Mario Mustilli

    (Department of Economics, Second University of Naples, Corso Gran Priorato di Malta, 1, Capua, Caserta, 81043, ITALY)

  • Eugenio D¡¯Angelo

    (Department of Economics, Second University of Naples, Corso Gran Priorato di Malta, 1, Capua, Caserta, 81043, ITALY)

Abstract
This paper is to make a contribution to the empirical analysis of the efficient market hypothesis, specifically to appraise the potential of fundamental analysis as a predictor of abnormal returns following dividend announcements in European financial markets. The authors use a sample of 1,708 manufacturing and service businesses. The findings obtained are evidence that fundamental analysis does help predict abnormal returns, that the prediction model is barely influenced by the overall economic cycle and that the efficiency level of the European financial market is not of the semi-strong type. The misalignment observed between the market prices and fundamental values of securities may either be traced to the inability of investors to correctly interpret and use the information that is made available or, and even more probably, to the fact that economic agents adopt principles and procedures other than those recommended by traditional theorists. The findings have led to the emergence of behavioural finance, a discipline which emphasises the irrational conduct of many investors in financial markets, as well as their tendency to underrate the risks associated with given investments on the wrong assumption that events held to be associated with disclosed information will ultimately be averted.

Suggested Citation

  • Francesco Campanella & Mario Mustilli & Eugenio D¡¯Angelo, 2016. "Efficient Market Hypothesis and Fundamental Analysis: An Empirical Test in the European Securities Market," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 27-42, February.
    • Handle: RePEc:bap:journl:160103
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    References listed on IDEAS

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    Cited by:

    1. Mario Mustilli & Francesco Campanella & Eugenio D’Angelo, 2018. "Abnormal Returns and Fundamental Analysis in Institutional Investors’ Decision-making: An Agency Theory Approach," International Business Research, Canadian Center of Science and Education, vol. 11(2), pages 55-69, February.

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    More about this item

    Keywords

    Information; Market efficiency; Fundamental analysis; European securities market; Abnormal returns; Dividend announcement;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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