Evidence on the existence of speculative bubbles in farmland prices

We conduct tests for the contribution of speculative bubbles to farmland prices. These tests are carried out under the hypothesis that farmland investors rationally form expectations. The outcome of tests reported here allows us to infer whether farmland prices are determined by market fundamentals-discounted returns from the highest economic land use-or whether rumors about farmland price movements are self-fulfilling. The tests are stationarity and cointegration tests relating farmland prices to rents. The tests are carried out using data from three farm production regions-the Corn Belt, the Northern Plains, and the Lake States. In each region, we find little evidence to reject the hypothesis that market fundamentals determine farmland prices.     

RATIONAL EXPECTATIONS AND THE DYNAMIC ADJUSTMENT OF SECURITY ANALYSTS' FORECASTS TO NEW INFORMATION

We report the results of unbiasedness tests of security analysts' earnings forecasts. By examining how analysts incorporate new information into their updated earnings forecasts we can analyze directly the effect of new information on analysts' forecast revisions and evaluate whether these revised forecasts converge to rational expectations forecasts. The forecasts made by security analysts participating in the Institutional Brokers Estimate System (IBES) database are analyzed. Using standard statistical tests, we reject the simple form of the rational expectations hypothesis. However, by extending the standard tests used in previous studies, we obtain results that suggest that analysts' earnings forecasts conform to a dynamic form of rationality. The tendency of revised forecasts to converge stochastically toward the rational expectations forecast cautions against the rejection of more complicated forms of rationality.     

Sources of risk and expected returns in global equity markets

This paper empirically examines multifactor asset pricing models for the returns and expected returns on eighteen national equity markets. The factors are chosen to measure global economic risks. Although previous studies do not reject the unconditional mean variance efficiency of a world market portfolio, our evidence indicates that the tests are low in power, and the world market betas do not provide a good explanation of cross-sectional differences in average returns. Multiple beta models provide an improved explanation of the equity returns.     

The long-horizon returns behaviour of the Portuguese stock market1

In the last few years several research studies have challenged the traditional weak-form efficiency tests of the stock market. These studies suggested an alternative to the random walk model, containing temporary and permanent components. If stocks follow such a model then the traditional tests, using returns computed for short intervals would be unable to detect them. To investigate the evidence for such models in the Portuguese stock market ten stock indexes were created. This is a pioneer study of the Portuguese stock market, and uses nominal, real and excess returns, computed for longer horizons. Three methodologies were used: variance ratios, ordinary least squares regressions and weighted least squares regressions. The statistical significance of the results was studied using traditional parametric tests as well as non-parametric tests. The evidence is mixed, as the presence of tendencies towards mean aversion and mean reversion were detected. Results also show that the evidence is very sensitive to the methodology used and the signifcance tests performed. These results, however, do not necessarily reject the weak-form market efficiency hypothesis.     

Tests of the expectations hypothesis: Resolving the anomalies when the short-term rate is the federal funds rate

The expectations hypothesis (EH) of the term structure plays an important role in the analysis of monetary policy, where shorter-term rates are assumed to be determined by the market’s expectation for the overnight federal funds rate. With two exceptions, tests using the effective federal funds rate as the short-term rate easily reject the EH. These exceptions are when the EH is tested over the nonborrowed reserve targeting period and when the test is performed only using data for settlement Wednesdays – the last day of bank reserve maintenance period. This paper argues that these exceptions are anomalous: in the former case, the failure to reject the EH occurs when economic analysis suggests that the market should be less able to forecast the federal funds rate. In the latter case, it occurs when there are sharp spikes in the funds rate that cannot improve materially the market’s ability to forecast the funds rate. Additional analysis shows that these anomalous results are a consequence of the procedure used to test the EH.     

Empirical analysis of real and financial volatilities on stock excess returns: evidence from Taiwan industrial data

This paper tests the relation between stock excess returns and risk factors measured by volatility. The sources of the volatility are based on the volatility of macroeconomic factors and time-series volatility. To model the macroeconomic fundamentals, we divide the risk into real and financial volatilities pertinent to Taiwan's economic environment. By examining the data of indusry excess returns and market excess returns, we find evidence to reject the hypothesis that the stock excess returns are independent of the real and financial volatilities.     

A CROSS-SECTIONAL REGRESSION TEST OF THE MEAN-VARIANCE EFFICIENCY OF AN AUSTRALIAN VALUE WEIGHTED MARKET PORTFOLIO

This paper tests the Mean-Variance efficiency of a value weighted Australian market portfolio using a multivariate cross-sectional regression approach developed by Shanken (1985). This test methodology is sufficiently powerful to reject the null hypothesis that the market portfolio is ex ante Mean-Variance efficient when test assets are constructed on the basis of size (market capitalisation). However, when test assets are constructed on the basis of industry classification the model is unable to reject the Mean-Variance efficiency of the market portfolio. This test statistic provides some useful diagnostics which are examined in the paper.     

Australian IPO pricing in the short and long run

We analyse both initial underpricing and post-listing returns for Australian IPOs. Our results are consistent with the view that unique institutional characteristics may have overwhelmed previous Australian tests of equilibrium models of IPO underpricing. The results also show that Australian IPOs significantly underperform market movements in the three-year period subsequent to listing. Further investigation of these anomalous post-listing returns lead us to reject various ‘speculative bubble’ explanations. Rather, the evidence suggests a curvilinear relationship between initial and subsequent returns, although the economic significance of the relationship is low.     

我国创业板市场过度反应的实证研究

本文以深圳创业板市场为研究对象,分析创业板市场是否存在过度反应的现象。研究结果表明,深圳创业板市场总体表现出"强者反转,弱者恒弱"的特点,说明我国投资者的理性程度与传统金融理论中的理性人假设相距甚远,需要通过加强投资者资质限制等手段优化投资者结构、提高投资者总体的理性水平,以达到稳定市场的目的。     

The expectation hypothesis of the term structure of very short-term rates: Statistical tests and economic value

This paper reexamines the validity of the expectation hypothesis (EH) of the term structure of US repo rates ranging in maturity from overnight to 3 months. We extend the work of Longstaff [2000b. The term structure of very short term rates: new evidence for the expectations hypothesis. Journal of Financial Economics 58, 397–415] in two directions: (1) we implement statistical tests designed to increase test power in this context; (2) more important, we assess the economic value of departures from the EH based on criteria of profitability and economic significance in the context of a simple trading strategy. The EH is rejected throughout the term structure examined on the basis of the statistical tests. However, the results of our economic analysis are favorable to the EH, suggesting that the statistical rejections of the EH in the repo market are economically insignificant.     

Dynamic Stock Markets with Multiple Assets: An Experimental Analysis

We study the performance of the rational expectations hypothesis in multiperiod experimental markets with multiple assets. We find that the markets are generally inefficient from the point of view of full information aggregation. However, arbitrage relationships hold, and it is not possible to detect the informational inefficiency by using some standard tests of market efficiency. These findings suggest that the lack of arbitrage opportunities and the failure of common tests to reject inefficiency are not sufficient to conclude that a market is informationally efficient.     

Monetary policy and bank lending in the Euro area: Is there a stock market channel or an interest rate channel?

In this paper I compare a traditional demand oriented model of bank lending with its focus on short-term interest rates in the money market, to a non-traditional capital budgeting model of bank lending based on movements in share valuations for the Euro area. Using non-nested hypothesis tests, omitted variables tests, and Granger Causality tests, I reject the traditional demand oriented model of bank lending and fail to reject the capital budgeting model of bank lending for Monetary Financial Institutions (MFI's) in the Euro area. Even though Europe is a bank-based financial system, it appears the stock market plays a key role in the lending decisions and allocation of resources in Europe. One possible policy implication of this research is that the central bank should try and stabilize stock prices in order to achieve their goal of stabilizing bank lending and the economy.     

Forward exchange market unbiasedness: the case of the Australian dollar since 1984

This paper implements a robust statistical approach to regression with non-stationary time series. The methods were recently developed in other work and are briefly exposited here. They allow us to perform regressions in levels with non-stationary time series data, they accommodate data distributions with heavy tails and they permit serial dependence and temporal heterogeneity of unknown form in the equation errors. With these features the methods are well suited to applications with frequently sampled exchange rate data, which generally display all of these empirical characteristics. Our application here is to daily data on spot and forward exchange rates between the Australian and US dollars over the period 1984–1991, following the deregulation of the Australian foreign exchange market. We find big differences between the robust and the non-robust regression outcomes and in the associated statistical tests of the hypothesis that the forward rate is an unbiased predictor of the future spot rate. The robust tests reject the unbiasedness hypothesis but still give the forward rate an important role as a predictor of the future spot rate.     

The composition of CMBS risk

This paper identifies the put-option, liquidity availability proportion, and shadow liquidity risk premia embedded within commercial mortgage backed securities (CMBS) using reduced form and structural generalization models. These risk values are then interpreted as trading signals which are tested with automated trading strategies that buy undervalued and sell overvalued CMBS from November 2007 through June 2015. All three signals generate substantial positive trading profits in testing for the reduced form model but not for the structural generalization. The risk signals constructed independently of market pricing provide more profitable automated trading insights than those constructed from interactions between modeled risk measures and market spreads. In my tests of the information content of the risk signals with respect to future macroeconomic indicators, I find statistically significant evidence in keeping with recent studies. While I cannot reject CMBS efficiency, this paper’s disclosure of new risk measures, the profitability of automated strategies based on those risk measures, and the statistical significance of their forward guidance capabilities, together contributes to our understanding of CMBS risk and the credit spread puzzle debate.     

An integrated view of tests of rationality,market efficiency and the short-run neutrality of monetary policy

This paper analyzes an important class of models in which expectations play an important role. Topics included in the analysis are tests of: (1) rationality of forecasts in either market or survey data, (2) capital market efficiency, (3) the short-run neutrality of monetary policy and, (4) Granger causality in macroeconometric models. The common elements of these tests are highlighted. In particular, cross-equation tests for rationality or the short-run neutrality of money are shown to be equivalent to more common regression tests in the literature. These results demonstrate that the exact specification of the relevant information set used in rational forecasts is not necessary for the cross-equation tests to have desirable asymptotic properties. Also discussed are the conditions for identification of coefficients and testability of hypotheses.     

TESTS OF RANDOM WALK AND MARKET EFFICIENCY FOR LATIN AMERICAN EMERGING EQUITY MARKETS

Variance-ratio methodology is used to test the hypothesis that Latin American emerging equity market prices follow a random walk. The data are monthly index prices in local currency from December 1975 to March 1991 for Argentina, Brazil, Chile, and Mexico. The variance-ratio tests reject the random walk hypothesis. However, runs tests indicate that Latin American equity markets are weak-form efficient. These empirical findings suggest that domestic investors might not be able to develop trading strategies that would allow them to earn excess returns.     

Testing the Efficiency of the Canadian-U.S. Exchange Market under the Assumption of no Risk Premium

The efficiency of the Canadian-U.S. exchange market for the current float is examined more extensively than previously. Semi-strong-form tests which admit the lagged spot rate as a predictor are considered in addition to the standard weak-form test. These stronger tests reject the joint null hypothesis of an efficient exchange market and no risk premium for the period ending in October 1976, although not for the entire period. For almost every year the current spot rate provided a better forecast of the future spot rate than did the current forward rate.     

Fundamentals or Noise? Evidence from the Professional Basketball Betting Market

This paper uses the betting market for professional basketball games to address the issue of unexplained asset price volatility. A pricing model is presented which identifies two components in point spreads for professional basketball games. Both components—the market's estimate of relative team abilities and an idiosyncratic factor—are essentially unobserved, but can be identified ex post. The structure of this market enables tests of competing hypotheses about point spread variation. The tests reject the hypothesis that variation in the two components represents irrelevant noise. The hypothesis that unobserved fundamentals account for this variation is consistent with the data.     

The forward discount puzzle and market efficiency

We argue that the forward discount puzzle is primarily a statistical phenomenon and that statistical rejections of Uncovered Interest Parity do not necessarily constitute valid rejections of market efficiency. We find by using a Taylor expansion a theoretical negative bias in existing regressions of UIP. We propose two alternative tests for market efficiency, one of which is designed to measure the degree of market inefficiency. Our results from these tests indicate that for all four of the bilateral dollar parities studied the foreign exchange market is efficient despite decisive clear rejections of UIP using the conventional regression approach.     

Estimating bid-ask spread components: Specialist versus multiple market maker systems

This paper tests two competing hypotheses concerning the relationship between adverse selection costs on NASDAQ versus specialist-dominated exchanges. We reject the hypothesis that specialist-dominated exchanges have smaller adverse selection costs than exchanges with multiple market makers. We provide direct evidence on the timing differences between closing transactions and quotes as well as evidence on the extent of nontrading on the AMEX and NYSE but cannot reject the hypothesis that adverse selection costs are a function of average transaction size (which is generally larger on the AMEX and NYSE). We also provide insight into institutional differences across exchanges and the ISSM data base.