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on Risk Management |
| By: | Hartmann, Daniel; Pierdzioch, Christian |
| Abstract: | We examined the link between international equity flows and U.S. stock returns. Based on the results of tests of in-sample and out-of-sample predictability of stock returns, we found evidence of a strong positive (negative) link between international equity flows and contemporaneous (one-month-ahead) stock returns. Our results also indicate that an investor, in real time, could have used information on the link between international equity flows and one-month-ahead stock returns to improve the performance of simple trading rules. |
| Keywords: | International equity flows; predictability of stock returns; performance of trading rules; the United States |
| JEL: | G11 E44 F32 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:562&r=rmg |
| By: | Bialkowski, Jedrzej; Gottschalk, Katrin; Wisniewski, Tomasz |
| Abstract: | This paper investigates a sample of 27 OECD countries to test whether national elections induce higher stock market volatility. It is found that the country-specific component of index return variance can easily double during the week around an Election Day, which shows that investors are surprised by the election outcome. Several factors, such as a narrow margin of victory, lack of compulsory voting laws, change in the political orientation of the government, or the failure to form a coalition with a majority of seats in parliament significantly contribute to the magnitude of the election shock. Our findings have important implications for the optimal strategies of risk-averse stock market investors and participants of the option markets. |
| Keywords: | Political risk; National elections; Stock market volatility |
| JEL: | G12 G14 G11 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:302&r=rmg |
| By: | Chia, Ricky Chee-Jiun; Liew, Venus Khim-Sen; Syed Khalid Wafa, Syed Azizi Wafa |
| Abstract: | This study examines the calendar anomalies in the Malaysian stock market. Using various generalized autoregressive conditional heteroskedasticity models; this study reveals the different anomaly patterns in this market for before, during and after the Asian financial crisis periods. Among other important findings, the evidence of negative Monday returns in post-crisis period is consistent with the related literature. However, this study finds no evidence of a January effect or any other monthly seasonality. The current empirical findings on the mean returns and their volatility in the Malaysian stock market could be useful in designing trading strategies and drawing investment decisions. For instance, as there appears to be no month-of-the-year effect, long-term investors may adopt the buy-and-hold strategy in the Malaysia stock market to obtain normal returns. In contrast, to obtain abnormal profit, investors have to deliberately looking for short-run misaligned price due to varying market volatility based on the finding of day-of-the-week effect. Besides, investors can use the day-of-the-week effect information to avoid and reduce the risk when investing in the Malaysian stock market. Further analysis using EGARCH and TGARCH models uncovered that asymmetrical market reactions on the positive and negative news, rendering doubts on the appropriateness of the previous research that employed GARCH and GARCH-M models in their analysis of calendar anomalies as the later two models assume asymmetrical market reactions. |
| Keywords: | calendar anomalies; Malaysia; stock market; GARCH models; day-of-the-week effect; month-of-the-year effect |
| JEL: | G14 C50 |
| Date: | 2006–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:516&r=rmg |
| By: | Hartmann, Daniel; Kempa, Bernd; Pierdzioch, Christian |
| Abstract: | We argue that the use of publicly available and easily accessible information on economic and financial crises to detect structural breaks in the link between stock returns and macroeconomic predictor variables improves the performance of simple trading rules in real time. In particular, our results suggest that accounting for structural breaks and regime shifts in forecasting regressions caused by economic and financial crises has the potential to increase the out-of-sample predictability of stock returns, the performance of simple trading rules, and the market-timing ability of an investor trading in the U.S. stock market. |
| Keywords: | Forecasting stock returns; financial and economic crises; trading rules |
| JEL: | C53 G11 E44 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:561&r=rmg |
| By: | H. OOGHE; C. SPAENJERS |
| Abstract: | Since decades, the topic of business failure prediction has been an important research area for both academics and practitioners. Bankruptcy prediction involves the classification of firms in a failing and a non-failing group3. Generally, this classification is based on (1) a prediction model that attributes a ‘score’ to each firm in the data set and (2) a certain cutoff point. To evaluate the classification results, several performance measures can be used. This note outlines these measures and illustrates the connections between them with numerical examples. This may help the reader to better understand (and possibly use) these classification measures. |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:06/405&r=rmg |
| By: | Hartmann, Daniel; Pierdzioch, Christian |
| Abstract: | Empirical evidence suggests that the link between exchange rate movements and stock returns may be nonlinear. This evidence could reflect fundamental economic effects like, for example, transaction costs in international goods market arbitrage. It could also reflect market inefficiencies if investors could exploit the nonlinearity to systematically improve the performance of simple trading rules. Using monthly data for major North-American and European industrial countries for the period 1973-2006, we found that it would have been difficult for an investor to use information on nonlinearities to improve the performance of a simple trading rule based on out-of-sample forecasts of stock returns. |
| Keywords: | Stock returns; exchange rate movements; nonlinearities |
| JEL: | C53 F37 E44 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:558&r=rmg |
| By: | Bialkowski, Jedrzej; Gottschalk, Katrin; Wisniewski, Tomasz |
| Abstract: | Prior research documented that U.S. stock prices tend to grow faster during Democratic administrations than during Republican administrations. This letter examines whether stock returns in other countries also depend on the political orientation of the incumbents. An analysis of 24 stock markets and 173 different governments reveals that there are no statistically significant differences in returns between left-wing and right-wing executives. Consequently, international investment strategies based on the political orientation of countries' leadership are likely to be futile. |
| Keywords: | Stock market returns; Politics; Presidential puzzle |
| JEL: | G14 G11 G15 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:307&r=rmg |
| By: | Kizys, Renatas; Pierdzioch, Christian |
| Abstract: | We study whether asymmetric macroeconomic shocks help to explain changes in the international comovement of monthly stock returns in major industrialized countries over the period 1970-2004. Based on a time-varying parameter model, we trace out how the pattern of international comovement of stock returns changed over time. In order to identify asymmetric macroeconomic shocks, we estimate vector autoregressive models. The results of estimating time-series regression models and panel-data models indicate that changes in the international comovement of stock returns are not systematically linked to macroeconomic shocks. |
| Keywords: | International comovement of stock returns; Asymmetric macroeconomic shocks; Time-varying parameter model; Time-series regression model; Panel-data model |
| JEL: | G15 E31 F37 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:758&r=rmg |
| By: | Papanastasopoulos, George |
| Abstract: | In this paper, we use option based measures of financial performance that utilize market information in a binary probit regression to examine their informational context and properties as distress indicators and to estimate default probabilities for listed firms. Then, we enrich them with fundamentals that utilize accounting information. The results suggest that by adding accounting information from financial statements to market information from equity prices we can improve both in sample fitting and out of sample predictability of defaults. Therefore, option theory does not generate sufficient statistics of the actual default frequency. Our main conclusion is that while market information can be extremely valuable, it is most useful when coupled with accounting information in assessing default risk of listed firms. |
| Keywords: | option theory; fundamentals; default risk |
| JEL: | G33 G32 M41 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:453&r=rmg |