Purpose The purpose of this paper is to consider the economic information content within several ... more Purpose The purpose of this paper is to consider the economic information content within several popular stock market factors and to the extent to which their movements are both explained by economic variables and can explain future output growth. Design/methodology/approach Using US stock portfolios from 1964 to 2019, the authors undertake three related exercises: whether a set of common factors contain independent predictive ability for stock returns, what economic and market variables explain movements in the factors and whether stock market factors have predictive power for future output growth. Findings The results show that several of the considered factors do not contain independent information for stock returns. Further, most of these factors are neither explained by economic conditions nor they provide any predictive power for future output growth. Thus, they appear to contain very little economic content. However, the results suggest that the impact of these factors is mor...
Recent empirical evidence suggests that stock market returns are predictable from a variety of fi... more Recent empirical evidence suggests that stock market returns are predictable from a variety of financial and macroeconomic variables. However, with a few exceptions relatively little evidence exists examining the presence of a long-run relationship between these variables. The ...
Http Dx Doi Org 10 1080 13518470110073676, Oct 15, 2010
ABSTRACT This paper examines volatility in UK Long Gilt and Short Sterling futures over several i... more ABSTRACT This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day frequencies. Initial GARCH model estimates are found to exhibit remaining residual structure and to be inconsistent with theoretical temporal aggregation results for all frequencies other than the full day. Further estimates suggest that intra-day volatility is more adequately characterized by a component model which decomposes volatility into short-run effects which dominate intra-day periods and long-run effects which dominate inter-day horizons, and that such components are associated with the arrival of information flows as proxied by volume. This component volatility model is also able to account for all dependence in Long Gilt futures at frequencies of 15 minutes and lower, and in Short Sterling futures at 1 hour and lower.
Using data spanning 200 years we examine the nature of the long-run cointegrating behaviour betwe... more Using data spanning 200 years we examine the nature of the long-run cointegrating behaviour between real output and real stock prices. A standard cointegration framework demonstrates that such a long-run relationship exists with both variables exhibiting significant equilibrium reversion, albeit quicker for stock prices. To further examine the nature of the equilibrium we consider two exercises. First, we consider possible
Http Dx Doi Org 10 1080 1351847x 2012 670122, Dec 16, 2013
ABSTRACT We examine the information content of insider employee stock option trading and its valu... more ABSTRACT We examine the information content of insider employee stock option trading and its value to market investors using a US dataset. There should be no presumption that option trading would not convey valuable information and indeed, the exercise of option rights is likely to signal insider knowledge. Our results from Granger-causality tests suggest that the actions of directors, officers (senior management) and the other groups, such as company lawyers, do indeed have predictive power for future returns. However, the actions of large shareholders have no additional information content over that which is publicly available. Evidence from predictive regressions largely supports these results, but is often weaker in significance. This seems to arise as the Granger-causality approach utilises a longer lag length and suggests that it takes time for the market to assimilate the information from insider actions. Overall, the results suggest that any outsider who can mimic the behaviour of certain insider groups could benefit in predicting future returns. Finally, the results confirm the belief that the market is unlikely to be strong-form efficient and that this is particularly true with smaller firms. In contrast, larger firms appear to be priced more efficiently than smaller ones.
This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day ... more This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day frequencies. Initial GARCH model estimates are found to exhibit remaining residual structure and to be inconsistent with theoretical temporal aggregation results for all frequencies other than the full day. Further estimates suggest that intra-day volatitlity is more adequately characterised by a component model which decomposes
Http Dx Doi Org 10 1080 09603107 2010 541150, Mar 16, 2011
This article examines the issue of stock returns forecasting and in particular extends the analys... more This article examines the issue of stock returns forecasting and in particular extends the analysis of the recently introduced sum of the parts modelling technique. The sum of the parts technique undertakes a first-stage regression analysis where the predictor variables themselves are estimated and the fitted values from these equations are then used in the forecast model. We conduct a series of one-step ahead recursive forecasts using the above methodology and compare that to the usual predictive regression approach for 11 markets, and a variety of forecast metrics and tests. Across the full range of markets and forecast measures, our results suggest that no single model dominates. Notably, while the sum of the parts approach often reports a lower Mean Absolute Error (MAE) and Root Mean-Squared Error (RMSE), it is rarely significantly lower than competing forecasts. Similar results are found on the basis of both regression and sign based tests. Thus, across the range of markets the new approach meets with only limited success in providing better forecasts, although it rarely performs significantly worse. Furthermore, in specific markets, the sum of the parts approach does perform well. Notably for Italy, the UK, US and Korea, this approach outperforms the alternate models on all or nearly all measures. Thus, in terms of guiding researchers on the appropriate forecast model, the sum of the parts approach is interesting and does suggest some forecast improvement. However, that is only for specific markets. Hence, in choosing which forecast method to adopt there remains the trade-off between the simplicity of the predictive regression approach and the sum of the parts approach, which is more involved but on occasion more accurate, although not universally so.
This study reappraises the evidence for nonlinear dependence in the monthly black market exchange... more This study reappraises the evidence for nonlinear dependence in the monthly black market exchange returns of the Polish zloty, 1955-1990. Predictive asymmetry is reported in conditional variance such that depreciatory shocks have a greater impact on subsequent volatility than appreciatory shocks, jointly with conditional mean nonlinearity of smooth transition between regimes which suggests a simple trading strategy capable of generating positive profit over the sample period. However, support is also found for a competing variance in mean model consistent with a time varying risk premium that is able to rationalize the presence of unexploited profit opportunities, particularly over the latter half of the sample.
Purpose The purpose of this paper is to consider the economic information content within several ... more Purpose The purpose of this paper is to consider the economic information content within several popular stock market factors and to the extent to which their movements are both explained by economic variables and can explain future output growth. Design/methodology/approach Using US stock portfolios from 1964 to 2019, the authors undertake three related exercises: whether a set of common factors contain independent predictive ability for stock returns, what economic and market variables explain movements in the factors and whether stock market factors have predictive power for future output growth. Findings The results show that several of the considered factors do not contain independent information for stock returns. Further, most of these factors are neither explained by economic conditions nor they provide any predictive power for future output growth. Thus, they appear to contain very little economic content. However, the results suggest that the impact of these factors is mor...
Recent empirical evidence suggests that stock market returns are predictable from a variety of fi... more Recent empirical evidence suggests that stock market returns are predictable from a variety of financial and macroeconomic variables. However, with a few exceptions relatively little evidence exists examining the presence of a long-run relationship between these variables. The ...
Http Dx Doi Org 10 1080 13518470110073676, Oct 15, 2010
ABSTRACT This paper examines volatility in UK Long Gilt and Short Sterling futures over several i... more ABSTRACT This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day frequencies. Initial GARCH model estimates are found to exhibit remaining residual structure and to be inconsistent with theoretical temporal aggregation results for all frequencies other than the full day. Further estimates suggest that intra-day volatility is more adequately characterized by a component model which decomposes volatility into short-run effects which dominate intra-day periods and long-run effects which dominate inter-day horizons, and that such components are associated with the arrival of information flows as proxied by volume. This component volatility model is also able to account for all dependence in Long Gilt futures at frequencies of 15 minutes and lower, and in Short Sterling futures at 1 hour and lower.
Using data spanning 200 years we examine the nature of the long-run cointegrating behaviour betwe... more Using data spanning 200 years we examine the nature of the long-run cointegrating behaviour between real output and real stock prices. A standard cointegration framework demonstrates that such a long-run relationship exists with both variables exhibiting significant equilibrium reversion, albeit quicker for stock prices. To further examine the nature of the equilibrium we consider two exercises. First, we consider possible
Http Dx Doi Org 10 1080 1351847x 2012 670122, Dec 16, 2013
ABSTRACT We examine the information content of insider employee stock option trading and its valu... more ABSTRACT We examine the information content of insider employee stock option trading and its value to market investors using a US dataset. There should be no presumption that option trading would not convey valuable information and indeed, the exercise of option rights is likely to signal insider knowledge. Our results from Granger-causality tests suggest that the actions of directors, officers (senior management) and the other groups, such as company lawyers, do indeed have predictive power for future returns. However, the actions of large shareholders have no additional information content over that which is publicly available. Evidence from predictive regressions largely supports these results, but is often weaker in significance. This seems to arise as the Granger-causality approach utilises a longer lag length and suggests that it takes time for the market to assimilate the information from insider actions. Overall, the results suggest that any outsider who can mimic the behaviour of certain insider groups could benefit in predicting future returns. Finally, the results confirm the belief that the market is unlikely to be strong-form efficient and that this is particularly true with smaller firms. In contrast, larger firms appear to be priced more efficiently than smaller ones.
This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day ... more This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day frequencies. Initial GARCH model estimates are found to exhibit remaining residual structure and to be inconsistent with theoretical temporal aggregation results for all frequencies other than the full day. Further estimates suggest that intra-day volatitlity is more adequately characterised by a component model which decomposes
Http Dx Doi Org 10 1080 09603107 2010 541150, Mar 16, 2011
This article examines the issue of stock returns forecasting and in particular extends the analys... more This article examines the issue of stock returns forecasting and in particular extends the analysis of the recently introduced sum of the parts modelling technique. The sum of the parts technique undertakes a first-stage regression analysis where the predictor variables themselves are estimated and the fitted values from these equations are then used in the forecast model. We conduct a series of one-step ahead recursive forecasts using the above methodology and compare that to the usual predictive regression approach for 11 markets, and a variety of forecast metrics and tests. Across the full range of markets and forecast measures, our results suggest that no single model dominates. Notably, while the sum of the parts approach often reports a lower Mean Absolute Error (MAE) and Root Mean-Squared Error (RMSE), it is rarely significantly lower than competing forecasts. Similar results are found on the basis of both regression and sign based tests. Thus, across the range of markets the new approach meets with only limited success in providing better forecasts, although it rarely performs significantly worse. Furthermore, in specific markets, the sum of the parts approach does perform well. Notably for Italy, the UK, US and Korea, this approach outperforms the alternate models on all or nearly all measures. Thus, in terms of guiding researchers on the appropriate forecast model, the sum of the parts approach is interesting and does suggest some forecast improvement. However, that is only for specific markets. Hence, in choosing which forecast method to adopt there remains the trade-off between the simplicity of the predictive regression approach and the sum of the parts approach, which is more involved but on occasion more accurate, although not universally so.
This study reappraises the evidence for nonlinear dependence in the monthly black market exchange... more This study reappraises the evidence for nonlinear dependence in the monthly black market exchange returns of the Polish zloty, 1955-1990. Predictive asymmetry is reported in conditional variance such that depreciatory shocks have a greater impact on subsequent volatility than appreciatory shocks, jointly with conditional mean nonlinearity of smooth transition between regimes which suggests a simple trading strategy capable of generating positive profit over the sample period. However, support is also found for a competing variance in mean model consistent with a time varying risk premium that is able to rationalize the presence of unexploited profit opportunities, particularly over the latter half of the sample.
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