Exchange rates,interventions, and the predictability of stock returns in Japan

Using monthly Japanese data for the period 1991–2005, we examined the link between exchange rate movements and stock returns. We found that exchange rate movements per se do not help to explain stock returns. There is, however, evidence of in-sample predictability if one accounts for the interventions of the Japanese monetary authorities in the foreign exchange market. This evidence does not indicate a violation of market efficiency insofar as investors cannot use information on interventions to systematically improve the performance of simple trading rules based on out-of-sample forecasts of stock returns.     

Technical trading rules for nonlinear dynamics of stock returns: evidence from the G-7 stock markets

This paper explores a possible link between an asymmetric dynamic process of stock returns and profitable technical trading rules. Using the G-7 stock market indexes, we show that the dynamic process of daily index returns is better characterized by nonlinearity arising from an asymmetric reverting property. The asymmetric reverting property of stock returns is exploitable in generating profitable buy and sells signals for technical trading strategies. The bootstrap analysis shows that not all nonlinearities generate profitable buy and sell signals, but rather only the nonlinearities generating a consistent asymmetrical pattern of return dynamics can be exploitable for the profitability of the trading rules. The significant positive (negative) returns from buy (sell) signals are a consequence of trading rules that exploit the asymmetric nonlinear dynamics of the stock returns that revolve around positive (negative) unconditional mean returns under prior positive (negative) return patterns. Our results corroborate the arguments for the usefulness of technical trading strategies in stock market investments.     

Is technical analysis profitable on a stock market which has characteristics that suggest it may be inefficient?

This paper considers the returns to technical analysis on the New Zealand stock market. The small nature, short-selling constraints, lack of analyst coverage, and loose insider trading regulation suggest that the New Zealand equity market may be less efficient than overseas markets. This raises the possibility that technical analysis is still profitable in New Zealand. Using a bootstrapping technique with common null models for stock returns and 12 popular technical trading rules, we find that the returns to technical analysis in New Zealand follow a similar pattern to those in large offshore markets. Technical analysis is no longer profitable.     

Profitability of Nonlinear Dynamics Under Technical Trading Rules: Evidence from Pacific Basin Stock Markets

This paper explores a possible link between an asymmetric dynamic process of stock returns and profitable technical trading rules. Using Pacific Basin stock market indexes, we show that the dynamic process of daily index returns is better characterized by nonlinearity arising from an asymmetric reverting property, and that the asymmetric reverting property of stock returns is exploitable in generating profitable buy and sell signals for technical trading rules. We show that the positive (negative) returns from buy (sell) signals are a consequence of trading rules that exploit the asymmetric dynamics of stock returns that revolve around positive (negative) unconditional mean returns under prior positive (negative) return patterns. Our results corroborate the arguments for the usefulness of technical analysis.     

Which past returns affect trading volume?

Anecdotal evidence suggests and recent theoretical models argue that past stock returns affect subsequent stock trading volume. We study 3,000 individual investors over a 51 month period to test this apparent link between past returns and volume using several different panel regression models (linear panel regressions, negative binomial panel regressions, Tobit panel regressions). We find that both past market returns as well as past portfolio returns affect trading activity of individual investors (as measured by stock portfolio turnover, the number of stock transactions, and the propensity to trade stocks in a given month). After high portfolio returns, investors buy high risk stocks and reduce the number of stocks in their portfolio. High past market returns do not lead to higher risk taking or underdiversification. We argue that the only explanations for our findings are overconfidence theories based on biased self-attribution and differences of opinion explanations for high levels of trading activity.     

The predictability of security returns with simple technical trading rules

Technical traders base their analysis on the premise that the patterns in market prices are assumed to recur in the future, and thus, these patterns can be used for predictive purposes. This paper uses the daily Dow Jones Industrial Average Index from 1897 to 1988 to examine the linear and nonlinear predictability of stock market returns with simple technical trading rules. The nonlinear specification of returns are modelled by single layer feedforward networks. The results indicate strong evidence of nonlinear predictability in the stock market returns by using the past buy and sell signals of the moving average rules.     

RESPONSE OF STOCK PRICES TO MONEY SUPPLY ANNOUNCEMENTS: AUSTRALIAN EVIDENCE

This paper extends the literature on the money supply announcement effect by examining the response of stock prices to the monthly announcements of the money supply made in Australia. The unexpected component of the money supply change is identified using both a market based survey of expectations and rolling ARIMA time series models. The analysis is further extended to examine the impact of the money supply announcements during the period of monetary target-ting; the cross-sectional impact of the announcements across various stock price indices and the pre- and post-announcement responses of stock prices. The results documented show no evidence of a significant stock price response to the money supply announcements in Australia.     

The intra-day performance of market timing strategies and trading systems based on Japanese candlesticks

Abstract

We develop market timing strategies and trading systems to test the intra-day predictive power of Japanese candlesticks at the 5-minute interval on the 30 constituents of the DJIA index. Around a third of the candlestick rules outperform the buy-and-hold strategy at the conservative Bonferroni level. After adjusting for trading costs, however, just a few rules remain profitable. When we correct for data snooping by applying the SSPA test on double-or-out market timing strategies, no single candlestick rule beats the buy-and-hold strategy after transaction costs. We also design fully automated trading systems by combining the best-performing candlestick rules. No evidence of out-performance is found after transaction costs. Although Japanese candlesticks can somewhat predict intra-day returns on large US caps, we show that such predictive power is too limited for active portfolio management to outperform the buy-and-hold strategy when luck, risk, and trading costs are correctly measured.     

Market Efficiency and the Returns to Simple Technical Trading Rules: New Evidence from U.S. Equity Market and Chinese Equity Markets

Numerous studies in the finance literature have investigated technical analysis to determine its validity as an investment tool. This study is an attempt to explore whether some forms of technical analysis can predict stock price movement and make excess profits based on certain trading rules in markets with different efficiency level. To avoid using arbitrarily selected 26 trading rules as did by Brock, Lakonishok and LeBaron (1992) and later by Bessembinder and Chan (1998), this paper examines predictive power and profitability of simple trading rules by expanding their universe of 26 rules to 412 rules. In order to find out the relationship between market efficiency and excess return by applying trading rules, we examine excess return over periods in U.S. markets and also compare the excess returns between U.S. market and Chinese markets. Our results found that there is no evidence at all supporting technical forecast power by these trading rules in U.S. equity index after 1975. During the 1990s break-even costs turned to be negative, –0.06%, even failing to beat a buy-holding strategyin U.S. equity market. In comparison, our results provide support for the technical strategies even in the presence of trading cost in Chinese stock markets.     

Momentum strategies and stock returns: Chinese evidence

This paper investigates the profitability of momentum investment strategies for equities listed in the Shanghai Stock Exchange. We also investigate the role of trading volume to examine whether there is any relationship between stock returns and past trading volume for Chinese equities. We find evidence of substantial momentum profits during the period 1995 to 2005 and that momentum is a pervasive feature of stock returns for the market investigated in this paper.Our findings suggest that investors can generate superior returns by investing in strategies unrelated to market movements. We also investigate the potential of past volume to explain momentum profits, and find no strong link between past volume and momentum profits. Our findings also show a strong momentum effect around earnings announcements but the magnitude of these returns is small in relation to the average monthly returns earned in the early months following portfolio formation.     

An analysis of trading strategies in eleven European stock markets

Abstract

In recent years, the validity of the weak form efficient market hypothesis (EMH) has been called into question as several studies have uncovered evidence that technical trading rules have predictive ability with respect to both developed and emerging stock market indices. This study analyses the forecasting power of 2 of the most popular trading rules using index data for a selection of 11 European stock markets over the January 1991 to December 2000 period. The findings indicate that the emerging markets included in this paper are informationally inefficient; these markets displayed some degree of predictability in their share returns, although the developed markets did not. Furthermore, the results point to large differences in the performance of the rules examined; while small size filters consistently outperformed the buy-and-hold strategy in the emerging markets examined even after the consideration of transaction costs, the performance of the moving average rules was erratic and varied dramatically from market to market.     

Microstructure and Seasonality in the UK Equity Market

This paper explores seasonality in the UK stock market. It examines the impact of alternative company year-ends on returns as well as seasonality in bid-ask spreads and trading activity variables including volume, number and size of trades. Consistent with the evidence elsewhere, seasonal variation in stock returns and trading activity is established although there is little evidence of a seasonal pattern in relative bid-ask spreads. Trading rules based on the seasonal patterns do not suggest that seasonality can be exploited to earn excess profits.     

The impact of monetary policy decisions on stock returns: Evidence from Thailand

Although numerous studies have examined the effect of monetary policy on stock prices, empirical research in the international setting remains relatively scant. Therefore, this topic is reexamined in the context of Thailand. In a sample of 50 repurchase rate announcements of the Bank of Thailand during 2003–2009, our regression results suggest that the raw change in the repurchase rate has a negative effect on stock returns at the market level, which is inconsistent with the literature. Contrary to the results of numerous studies, we find that at the market level the expected change in the repurchase rate has a negative effect on stock returns and the unexpected change in the repurchase rate exhibits no effect on stock returns. However, the effect of the unexpected change in the repurchase rate on stock returns is evident at the firm level. Our findings also suggest that the stock market's response to the repurchase rate change is asymmetric. The unexpected change in the repurchase rate that is considered as good news has a negative effect on stock returns. Overall, the evidence lends support to the notion that the monetary policy announcements have a significant effect on stock prices and further adds to the debate on whether the creditability of the monetary authority may contribute to the stock market's response to the monetary policy actions.     

我国股票市场和房地产市场对货币流速的影响

探讨股市和房市对货币流速的效应是对货币流速影响因素进行实证研究的一个方向。实证结果表明,我国股市、房市变量与狭义货币流速、广义货币流速均存在长期均衡关系,且与货币流速负相关,狭义货币流速主要受股市影响,广义货币流速主要受房市影响。股市和房市导致货币流速下降的原因,有助于解释我国的一些经济现象,同时也提醒我们应进一步规范股市和房市的发展,央行制定货币政策时应该考虑股市和房市对货币需求的影响,要采取预防性货币政策,保持经济与金融的稳健运行。     

Does intraday technical analysis in the U.S. equity market have value?

This paper investigates whether intraday technical analysis is profitable in the U.S. equity market. Surveys of market participants indicate that they place more emphasis on technical analysis (and less on fundamental analysis) the shorter the time horizon; however, the technical analysis literature to date has focused on long-term technical trading rules. We find, using two bootstrap methodologies, that none of the 7846 popular technical trading rules we test are profitable after data snooping bias is taken into account. There is no evidence that the market is inefficient over this time horizon.     

Do DOW returns really influence the intraday Spanish stock market behavior?

Although the behavior of the Spanish stock market has been studied from many different points of view, none of the previous research has ever analyzed the influence of previous daytime, overnight and daily returns from the DOW and IBEX upon 5-min intraday returns of the IBEX throughout the complete trading session. Clear evidence is provided relative to the influence of the DOW. The main finding that it underreacts to the DOW returns in the first hours of trading but overreacts during the last 2 h (after the opening of the US markets) would help to develop a profitable trading strategy.     

我国货币政策对股票市场收益率影响的实证研究

为检验我国货币政策对股票市场的有效性,本文在经典理论的基础上,运用协整检验、格兰杰因果检验、VECM检验方法,对货币政策与股票市场收益率关系进行实证分析。研究结果表明：货币供应量增长率与股票市场收益率呈正相关关系,但长期内影响效果不显著;利率的调整在短期内对股票收益率的影响较为显著,在长期内则表现为平稳,两者关系符合一般金融理论;进一步地,采用虚拟变量回归模型,分析了货币政策环境变化对收益率大小的影响。笔者根据我国的国情,分析这种传导效应的结果,做出了相应的判断,并对如何解决货币政策对股票市场传导中存在的问题提出了自己的看法。     

How profitable are FX technical trading rules?

This paper provides a comprehensive empirical investigation of the profitability of foreign exchange technical trading rules over the 1996:10–2015:06 period for 22 currencies quoted in US dollars. It reports evidence of profitability across a universe of 113,148 rules that include traditional moving average rules and those constructed on the basis of technical indicators such as Bollinger bands and the relative strength index. The best trading rules achieve annualised returns of up to 30%. The Step-SPA test (Hsu, Hsu, & Kuan, 2010) results show a sharp fall in the total number of rules that are robust to data snooping bias. Virtually no traditional rule is significant in the 2006–2015 sub-sample, in line with the adaptive market hypothesis. By contrast, rules based on new technical indicator such as Bollinger band and relative strength index rules remain robustly profitable across all currencies over the more recent sub-sample.     

Air pollution and mediation effects in stock market,longitudinal evidence from China

By obtaining a novel proprietary city-level panel dataset of stock returns and trading volume in China, this article investigates the effect of air pollution on the stock market while avoiding the possible confounding factors reported in previous similar studies. The analysis finds that there are significant negative effects generated by air pollution on stock returns and trading volume, and these effects manifest themselves on successive days. Air pollution affects stock returns on the same day, which then mediates the effect of air pollution on trading volume on the next day. Similar negative effects are also found in several different pollutants. Our results validate the negative relationship of air pollution on the stock market in literature with longitudinal evidence, and illustrate the steps of the air pollution effect in the stock market.     

Tactical Asset Allocation and Stock Issuance in the Korean Stock Market

Stock issuance predicts future stock returns in the Korean market. This creates profitable trading opportunities. Abnormal returns exist in the zero-cost portfolio that short the firms issuing large numbers of shares and longs those issuing small numbers of shares. Their average abnormal return is 12 percent per annum, which is highly significant even after controlling for market, size, value, and momentum factors as well as transaction costs. The authors suggest the possibility of fixed costs in equity market timing. Only the sizable benefit from market timing over fixed costs motivates firms to increase net equity shares.