Forecasting stock market returns over multiple time horizons

In this paper, we seek to demonstrate the predictability of stock market returns and explain the nature of this return predictability. To this end, we introduce investors with different investment horizons into the news-driven, analytic, agent-based market model developed in Gusev et al. [Algo. Finance, 2015, 4, 5–51]. This heterogeneous framework enables us to capture dynamics at multiple timescales, expanding the model’s applications and improving precision. We study the heterogeneous model theoretically and empirically to highlight essential mechanisms underlying certain market behaviours, such as transitions between bull and bear markets and the self-similar behaviour of price changes. Most importantly, we apply this model to show that the stock market is nearly efficient on intraday timescales, adjusting quickly to incoming news, but becomes inefficient on longer timescales, where news may have a long-lasting nonlinear impact on dynamics, attributable to a feedback mechanism acting over these horizons. Then, using the model, we design algorithmic strategies that utilize news flow, quantified and measured, as the only input to trade on market return forecasts over multiple horizons, from days to months. The backtested results suggest that the return is predictable to the extent that successful trading strategies can be constructed to harness this predictability.     

Labor market flows in the cross section and over time

Many theoretical models of labor market search imply a tight link between worker flows (hires and separations) and job gains and losses at the employer level. We use rich establishment-level data to assess several theoretical models and to study the relationship between worker flows and jobs flows. Hires, quits, and layoffs exhibit strong, highly nonlinear relationships to employer growth rates in the cross section. Simple statistical models of these relationships greatly improve our ability to account for fluctuations in aggregate worker flows and enable us to construct synthetic measures of hires, separations, quits, and layoffs back to 1990.     

Do managers time the market? Evidence from open-market share repurchases

A contentious debate exists over whether executives possess market timing skills when announcing certain corporate transactions. Pseudo-market timing, however, has recently emerged as an important alternative hypothesis as to why the appearance of timing might be evident when, in fact, none exists. We reconsider this debate in the context of share repurchases. Consistent with prior studies, we also report evidence of abnormal stock performance following buyback announcements. Pseudo-market timing, however, does not appear to be a viable explanation. Our results are more consistent with the notion that managers possess timing ability, at least in the context of share repurchases.     

Do mutual funds time the market? Evidence from portfolio holdings

Previous research finds insignificant market-timing ability for mutual funds using tests based on fund returns. The return-based tests, however, are subject to the “artificial timing” bias. In this paper, we propose and implement new measures of market timing based on mutual fund holdings. Our holdings-based measures do not suffer from the artificial timing bias. We find that, on average, actively managed U.S. domestic equity funds have positive timing ability. Market timing funds use non-public information to predict market returns, tend to have high industry concentration, large fund size, a tilt toward small-cap stocks, and are active in industry rotation.     

我国证券市场应适时推出国际板

2009年4月国务院发布<国务院关于推进上海加快发展现代服务业和先进制造业、建设国际金融中心和国际航运中心的意见>,将上海证券交易所国际板的推出提上议程.促进上海证券交易所的国际化,成为上海建设国际金融中心的重要内容.本文分析归纳了我国已经基本具备推出国际板的条件,对推出国际板的利弊进行了简要分析,提出加快推出国际板的对策性建议.     

The role of shorting,firm size,and time on market anomalies

We examine the role of shorting, firm size, and time on the profitability of size, value, and momentum strategies. We find that long positions make up almost all of size, 60% of value, and half of momentum profits. Shorting becomes less important for momentum and more important for value as firm size decreases. The value premium decreases with firm size and is weak among the largest stocks. Momentum profits, however, exhibit no reliable relation with size. These effects are robust over 86 years of US equity data and almost 40 years of data across four international equity markets and five asset classes. Variation over time and across markets of these effects is consistent with random chance. We find little evidence that size, value, and momentum returns are significantly affected by changes in trading costs or institutional and hedge fund ownership over time.     

On time varying risk premia in the foreign exchange market: An econometric analysis

A generic intertemporal asset pricing model is applied in an international setting to generate a (possibly time varying) risk premium in the market for forward foreign exchange. The model is fitted and statistical tests of its general specification are performed. These specification tests provide weak evidence against the model.     

Dynamic trading with uncertain exit time and transaction costs in a general Markov market

This paper investigates a dynamic trading problem with transaction cost and uncertain exit time in a general Markov market, where the mean vector and covariance matrix of returns depend on the states of the stochastic market, and the market state is regime switching in a time varying state set. Following the framework proposed by Gârleanu and Pedersen (2013), the investor maximizes his or her multi-period mean–variance utility, net of quadratic transaction costs capturing the linear price impact where trades lead to temporary linear changes in prices. The explicit expression for the optimal strategy is derived by using matrix theory technique and dynamic programming approach. Finally, numerical examples are provided to study the effects of transition cost and exit probability on the wealth process, the trading strategy, turnover rate and the total transaction cost.     

Price concessions,time on the market,and the actual sale price of homes

This article examines the relationships between listing price concessions, time on the market, and the actual sale price of homes. The principal hypothesis that significant listing price concessions, usually the result of overpricing, can lead to real discounts on the final sale price is proven by our empirical results. We also found that the longer the time on the market, the higher the sale price, ceteris paribus. This finding is consistent with the theory that the longer a property remains on the market, the higher the probability is that a relatively superior selling price can be realized.     

Functional gradient descent for financial time series with an application to the measurement of market risk

The estimation and forecast of the volatility matrix are two of the main tasks of financial econometrics since they are essential ingredients in many practical applications. Unfortunately the use of classical multivariate methods in large dimensions is difficult because of the curse of dimensionality. We present a general semiparametric technique, based on functional gradient descent (FGD) and able to overcome most problems associated with a multivariate GARCH-type estimation. By testing the accuracy of the volatility estimates for the measurement of market risk on real data we provide empirical evidence of the strong predictive potential of the FGD approach, also in comparison to other standard methods.     

The effects of randomizing the opening time on the performance of a stock market under stress

To tackle challenges from derivatives trading and illiquidity, reduce manipulation and improve price discovery, many exchanges have started opening at random times. We investigate how randomization has affected the performance of the Tel Aviv Stock Exchange at trade opening and at the expiration of stock-index derivatives. Randomization has improved price discovery and reduced excess volatility and price distortion, especially on expiration dates. Although preopening prices do not converge to full information values, post-randomization, opening prices on expiration days are at least as accurate as on other days. Spot market trading systems significantly impact the effects of derivatives on spot prices.     

The time difference effect of a measurement unit in the lead-lag relationship analysis of Korean financial market

This paper investigates Korean financial markets for the study of market microstructure of price discovery in the KOSPI 200 stock index and its related derivatives markets using different time-interval price data. The Granger causality test and vector error correction model are used to analyze the empirical relationship between markets. The lead-lag relationship between the KOSPI 200 stock index and its derivatives markets can be supported by the trading cost hypothesis and leverage effect hypothesis. This paper also shows the congruent lead-lag results in various time-intervals, but as the time-interval becomes large, more information loss and spurious results are induced. The correlations among 1-minute data, 5-minute data, and 10-minute data are significant under a 1% significance level, however, in the case of 60-minute data, the correlations with any other time-interval data are not significant. The 60-minute data even have negative correlations with others. These results are consistent regardless of the raw data or the innovation data. Therefore, we can conclude that the previous research using the 60-minute data due to an insufficiency of trading volume can be biased considerably.     

Stocks,bonds and the investment horizon: a test of time diversification on the French market

Abstract

In this paper, we investigate the relative performance of stocks and bonds for various investment horizons on the French market. We use a new matched block bootstrap approach to take account of estimation risk. Furthermore, in the light of non-normality of returns, we use two different risk approaches as inputs in portfolio optimization: the traditional variance, and a downside risk measure, the semi-variance. Our results suggest that an investor should avoid bonds in the long run due to the time diversification effect.     

基于分形市场的认股权证定价分析

传统的Black-Scholes期权定价模型没能考虑权证执行的“稀释效应”以及“红利分配”问题，修正的模型虽然解决了这两个问题，但仍然建立在市场有效性的假设基础之上，而分形市场中的分数布朗运动定价模型合理地解决了这些问题。本文以武钢认股权证（WISCO）为例，对认股权证的定价进行了实证探索，并对权证的理论价格与实际价格以及标的证券——武钢股价的走势进行了对比研究，指出了认股权证市场价格的不舍理性和存在的获利机会。     

Sources of time varying return comovements during different economic regimes: evidence from the emerging Indian equity market

We study the economic and non-economic sources of stock return comovements of the emerging Indian equity market and the developed equity markets of the US, UK, Germany, France, Canada and Japan. Our findings show that the probability of extreme comovements in the economic contraction regime is relatively higher than in the economic expansion regime. We show that international interest rates, inflation uncertainty and dividend yields are the main drivers of the asymmetric return comovements. Findings reported in the paper imply that the impact of interest rates and inflation on return comovements could be used for anticipating financial contagion and/or spillover effects. This is particularly critical since during extreme market conditions, the tail return comovements can potentially reveal critical information for active portfolio management.     

Changes in the value relevance of accounting information over time: Evidence from the emerging market of China

We investigate the changes in the value relevance of accounting information among Chinese firms over the past two decades, during which accounting reforms are launched to provide decision makers with increased disclosure and higher quality financial information. We also investigate the factors that differentiate firms showing significant value relevance improvement from firms showing little improvement. We find increases in the value relevance of some financial variables and decreases in others, which suggests that accounting numbers help to explain the pricing process of stock shares although at different levels. In addition, we find that value relevance improvements are more pronounced for smaller firms, firms with lower growth rates, and those with greater asset tangibility. We also document that value relevance improvements are generally lower in an exuberant stock market. These results have implications for a variety of information users and policy makers in emerging countries which are reforming their accounting systems.     

Local market makers, liquidity and market quality

We examine the role of geographically proximate (local) market makers in providing liquidity and improving the quality of a dealer market. Firms with active participation of local dealers enjoy lower quoted and effective spreads, as well as more informative prices. The beneficial effects from local market makers are not confined to a few “top” local dealers and they cannot be attributed to their participation in the firm's IPO syndicate or industry specialization. Further, we find that days with aggressive bidding from local market makers relative to their non-local counterparts are associated with significant positive abnormal returns, consistent with local market makers possessing information advantages. In summary, our results suggest that the information advantages of local market makers may be a contributing factor to the reduction in the cost of trading.