Information diffusion and the predictability of New Zealand stock market returns

This paper examines the impact of international predictors from liquid markets on the predictability of excess returns in the New Zealand stock market using data from May 1992 to February 2011. We find that US stock market return and VIX contribute significantly to the out‐of‐sample forecasts at short horizons even after controlling for the effect of local predictors, while the contribution by Australian stock market return is not significant. We further demonstrate that the predictability of New Zealand stock market returns using US market predictors could be explained by the information diffusion between these two countries.     

The current account and stock returns

In this paper, I use stock return data to test an intertemporal model of the current account. I find that the model performs well in three countries: the U.K., Canada, and Japan. Hall [Hall, R.E., 1978. Stochastic implication of the life cycle-permanent income hypothesis: theory and evidence. J. Polit. Econ. 86 (6), 971–987] points out that because stock price predicts the future state of the economy, it predicts consumption. Assuming that consumption depends on permanent income, my empirical finding indicates that a representative agent smoothes consumption based on stock market information. In other words, stock market returns yield information about permanent income.     

The value premium,aggregate risk innovations,and average stock returns

We test whether innovations in aggregate risk, interpolated from a vector autoregressive system that contains the Chen et al. (1986) five factors as in Petkova (2006), are common factors in cross-sectional stock returns. We provide direct evidence that innovation in industrial production growth, a classical business-cycle variable that summarizes the state of the economy, is associated with the cross-sectional return predictability of individual stocks. We conclude that the role of innovation in aggregate risk is not random, and furthermore that it provides guidance concerning an important source of nonfinancial market-based risk in asset returns.     

An empirical analysis of the day-of-the-week effect in stock returns: The case of U.S. and Japan

This article employs daily closing index data to investigate the relationship between the U.S. and Japanese equity markets. It reassesses and extends the Becker et al. (1990) methodology over a longer sample space. The article then advances the analysis further by estimating structural equation models and by including the exchange rate as an additional explanatory variable. The resulting multivariate econometric design shows that the U.S. equity market strongly affects the Japanese equity market Monday through Friday while the Japanese market exerts a weaker influence on the U.S. market with the influence observed only on Mondays and Wednesdays.