Pub Date : 2008-10-18DOI: 10.1080/17446540801935389
J. Beirne, G. D. de Bondt
This empirical study examines the relation between the equity premium – the difference between the expected stock and risk-free return – and inflation in the major economies in the post-Bretton Woods era. We estimate a country-average level of the equity premium between 0.8% and 2%, confirming a shrinking premium. Regressions and impulse responses show that the equity premium significantly positively adjusts to inflation. Inflation is thus essential in explaining the level of the equity premium and provides a partial resolution to the equity premium puzzle.
{"title":"The equity premium and inflation","authors":"J. Beirne, G. D. de Bondt","doi":"10.1080/17446540801935389","DOIUrl":"https://doi.org/10.1080/17446540801935389","url":null,"abstract":"This empirical study examines the relation between the equity premium – the difference between the expected stock and risk-free return – and inflation in the major economies in the post-Bretton Woods era. We estimate a country-average level of the equity premium between 0.8% and 2%, confirming a shrinking premium. Regressions and impulse responses show that the equity premium significantly positively adjusts to inflation. Inflation is thus essential in explaining the level of the equity premium and provides a partial resolution to the equity premium puzzle.","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127219353","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-10-18DOI: 10.1080/17446540701765225
Y. Hsing
This article applies the extended Box–Cox model to test functional forms of purchasing power parity (PPP) for nine new EU countries. It finds that the widely used double-log form for PPP can be rejected for eight countries except for the Czech Republic and that the unitary elasticity can be rejected for eight countries except for Slovenia. Hence, most countries have a nonlinear functional form of PPP and exhibit a nonunitary elasticity.
{"title":"On the functional form of PPP: the case of nine new EU countries","authors":"Y. Hsing","doi":"10.1080/17446540701765225","DOIUrl":"https://doi.org/10.1080/17446540701765225","url":null,"abstract":"This article applies the extended Box–Cox model to test functional forms of purchasing power parity (PPP) for nine new EU countries. It finds that the widely used double-log form for PPP can be rejected for eight countries except for the Czech Republic and that the unitary elasticity can be rejected for eight countries except for Slovenia. Hence, most countries have a nonlinear functional form of PPP and exhibit a nonunitary elasticity.","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125488952","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-10-18DOI: 10.1080/17446540801964355
Chia-Hsing Huang, Shu-Shian Lin
This article examined the interrelationships between the United States, Korea compared with China and Korea. We used the daily stock index among these three markets from 1 January 1999 to 31 October 2005. Our article found that, following China entered WTO, there is insignificant relationship between China and Korea stock markets, however, significant interrelationship between the United States and S. Korea. But in late 2002, there are structural change of economy among China, Korea and the United States. Korea stock market was influenced by China gradually, and there existed insignificant interrelate between the United States and Korea.
{"title":"The impact of WTO on international interdependence degree among United States, Korea and China","authors":"Chia-Hsing Huang, Shu-Shian Lin","doi":"10.1080/17446540801964355","DOIUrl":"https://doi.org/10.1080/17446540801964355","url":null,"abstract":"This article examined the interrelationships between the United States, Korea compared with China and Korea. We used the daily stock index among these three markets from 1 January 1999 to 31 October 2005. Our article found that, following China entered WTO, there is insignificant relationship between China and Korea stock markets, however, significant interrelationship between the United States and S. Korea. But in late 2002, there are structural change of economy among China, Korea and the United States. Korea stock market was influenced by China gradually, and there existed insignificant interrelate between the United States and Korea.","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124759808","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-10-18DOI: 10.1080/17446540701765233
U. Triacca
This is correct if zt had not been standardized. Given that zt is standardized as we describe at the end of Section II, this expectation should be unity (this mistake has been found by Prof. David Giles). On p. 257 it then follows that the expection of et is zero and we have unbiasedness. This, of course, then affects and simplifies the calculation for the variance that follows. In particular, we have that, if SV-t model (M2) holds, the correct formula for the variance of et, is
{"title":"Erratum to ON the variance of the error associated to the squared return as proxy of volatility: [Applied Financial Economics Letters, 2007, 3, 255–7]","authors":"U. Triacca","doi":"10.1080/17446540701765233","DOIUrl":"https://doi.org/10.1080/17446540701765233","url":null,"abstract":"This is correct if zt had not been standardized. Given that zt is standardized as we describe at the end of Section II, this expectation should be unity (this mistake has been found by Prof. David Giles). On p. 257 it then follows that the expection of et is zero and we have unbiasedness. This, of course, then affects and simplifies the calculation for the variance that follows. In particular, we have that, if SV-t model (M2) holds, the correct formula for the variance of et, is","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115425278","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-10-18DOI: 10.1080/17446540701765241
B. Bollen
This study proposes a new approach to the specification of the volatility process for the USD-DEM spot exchange rate. This new specification incorporates long-term asymmetric effects. Although asymmetry in the volatility process is well-documented, existing models have typically modelled the impact of the previous trading day's return upon contemporaneous volatility. In this study, it is demonstrated empirically that the historical return over the previous 8 months of trading has a significant impact upon contemporaneous volatility. The methodology employed in this study draws on recent research into realized volatility. By utilizing the concept of realized volatility, simple regression techniques can be implemented to develop an econometric model of long-term asymmetry in the volatility process for the USD-DEM spot exchange rate.
{"title":"Long-term asymmetry in the USD-DEM spot exchange rate volatility process","authors":"B. Bollen","doi":"10.1080/17446540701765241","DOIUrl":"https://doi.org/10.1080/17446540701765241","url":null,"abstract":"This study proposes a new approach to the specification of the volatility process for the USD-DEM spot exchange rate. This new specification incorporates long-term asymmetric effects. Although asymmetry in the volatility process is well-documented, existing models have typically modelled the impact of the previous trading day's return upon contemporaneous volatility. In this study, it is demonstrated empirically that the historical return over the previous 8 months of trading has a significant impact upon contemporaneous volatility. The methodology employed in this study draws on recent research into realized volatility. By utilizing the concept of realized volatility, simple regression techniques can be implemented to develop an econometric model of long-term asymmetry in the volatility process for the USD-DEM spot exchange rate.","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115597847","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-10-17DOI: 10.1080/17446540701765258
Stavros Degiannakis, E. Xekalaki
A number of single ARCH model-based methods of predicting volatility are compared to Degiannakis and Xekalaki's (2005) poly-model standardized prediction error criterion (SPEC) algorithm method in terms of profits from trading actual options of the S&P500 index returns. The results show that traders using the SPEC for deciding which model's forecasts to use at any given point in time achieve the highest profits.
{"title":"SPEC model selection algorithm for ARCH models: an options pricing evaluation framework","authors":"Stavros Degiannakis, E. Xekalaki","doi":"10.1080/17446540701765258","DOIUrl":"https://doi.org/10.1080/17446540701765258","url":null,"abstract":"A number of single ARCH model-based methods of predicting volatility are compared to Degiannakis and Xekalaki's (2005) poly-model standardized prediction error criterion (SPEC) algorithm method in terms of profits from trading actual options of the S&P500 index returns. The results show that traders using the SPEC for deciding which model's forecasts to use at any given point in time achieve the highest profits.","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131094753","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-10-17DOI: 10.1080/17446540801949760
Lucie Samson
In this article the restrictions imposed on excess returns by a dynamic optimization model are tested on stock market data from the Toronto Stock Exchange (TSE), from which ten size-portfolios have been formed. The model implies that all excess returns should move proportionately if assets are perfectly integrated. The restriction that all size portfolios are governed by one single latent variable is rejected over the sample period 1961–2002. It is established that this rejection is due to the presence of the smallest size portfolio, especially during the second half of the sample period. The uncertainties of the late 1980s and 1990s appear to require the presence of a second latent variable. No definite conclusions can be drawn regarding these sources of risk even if the return on the market portfolio and exchange rate fluctuations play an important role.
{"title":"Size and stock market integration: a study of Canadian firms","authors":"Lucie Samson","doi":"10.1080/17446540801949760","DOIUrl":"https://doi.org/10.1080/17446540801949760","url":null,"abstract":"In this article the restrictions imposed on excess returns by a dynamic optimization model are tested on stock market data from the Toronto Stock Exchange (TSE), from which ten size-portfolios have been formed. The model implies that all excess returns should move proportionately if assets are perfectly integrated. The restriction that all size portfolios are governed by one single latent variable is rejected over the sample period 1961–2002. It is established that this rejection is due to the presence of the smallest size portfolio, especially during the second half of the sample period. The uncertainties of the late 1980s and 1990s appear to require the presence of a second latent variable. No definite conclusions can be drawn regarding these sources of risk even if the return on the market portfolio and exchange rate fluctuations play an important role.","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130181040","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-10-17DOI: 10.1080/17446540701748965
V. Leone, L. A. Leger
Stock prices should respond only to unpredictable components of economic news (‘innovations’) in efficient markets. While innovations used in empirical investigations of the economic underpinnings of stock market risk should at least satisfy this basic requirement, this may not guarantee satisfactory research results. Three methods of generating innovations are evaluated for a variety of economic variables. First differencing produces unsatisfactory, serially correlated innovations in general. Both ARIMA and Kalman Filter innovations are unpredictable, but in a further evaluation the component scores from Principal Components Analysis are regressed against economic innovations using PcGets. The results are far less noisy when Kalman Filter innovations are used.
{"title":"Generating innovations in economic variables","authors":"V. Leone, L. A. Leger","doi":"10.1080/17446540701748965","DOIUrl":"https://doi.org/10.1080/17446540701748965","url":null,"abstract":"Stock prices should respond only to unpredictable components of economic news (‘innovations’) in efficient markets. While innovations used in empirical investigations of the economic underpinnings of stock market risk should at least satisfy this basic requirement, this may not guarantee satisfactory research results. Three methods of generating innovations are evaluated for a variety of economic variables. First differencing produces unsatisfactory, serially correlated innovations in general. Both ARIMA and Kalman Filter innovations are unpredictable, but in a further evaluation the component scores from Principal Components Analysis are regressed against economic innovations using PcGets. The results are far less noisy when Kalman Filter innovations are used.","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124040494","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-10-17DOI: 10.1080/17446540801964439
Kathryn. Holmes, R. Faff
We examine the impact of style drift on the fund performance measures of selectivity and market timing. We find that style drift is positively related to selectivity performance, only when the market is in decline. Flow volatility is positively related to market timing ability during upmarket conditions. In addition, we find that larger funds are superior at stock selection, regardless of market conditions.
{"title":"Style drift and fund performance in up and down markets: Australian evidence","authors":"Kathryn. Holmes, R. Faff","doi":"10.1080/17446540801964439","DOIUrl":"https://doi.org/10.1080/17446540801964439","url":null,"abstract":"We examine the impact of style drift on the fund performance measures of selectivity and market timing. We find that style drift is positively related to selectivity performance, only when the market is in decline. Flow volatility is positively related to market timing ability during upmarket conditions. In addition, we find that larger funds are superior at stock selection, regardless of market conditions.","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121710120","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-10-17DOI: 10.1080/17446540701765274
Mingchih Lee, Jung-bin Su, Hung‐Chun Liu
This investigation proposes a composite Simpson's rule, a numerical integral method, for estimating quantiles on the skewed generalized error distribution (SGED). Daily spot prices of S&P500 and Dow-Jones stock indices are used as data to examine the one-day-ahead VaR (Value at Risk) forecasting performance of the GARCH-N and GARCH-SGED models. Empirical results show that the GARCH-SGED models provide more accurate VaR forecasts than the GARCH-N models for both low and high confidence levels. These findings demonstrate that the use of SGED distribution, which explicitly accommodates both skewness and kurtosis, is essential for out-of-sample VaR forecasting in US stock markets.
{"title":"Value-at-risk in US stock indices with skewed generalized error distribution","authors":"Mingchih Lee, Jung-bin Su, Hung‐Chun Liu","doi":"10.1080/17446540701765274","DOIUrl":"https://doi.org/10.1080/17446540701765274","url":null,"abstract":"This investigation proposes a composite Simpson's rule, a numerical integral method, for estimating quantiles on the skewed generalized error distribution (SGED). Daily spot prices of S&P500 and Dow-Jones stock indices are used as data to examine the one-day-ahead VaR (Value at Risk) forecasting performance of the GARCH-N and GARCH-SGED models. Empirical results show that the GARCH-SGED models provide more accurate VaR forecasts than the GARCH-N models for both low and high confidence levels. These findings demonstrate that the use of SGED distribution, which explicitly accommodates both skewness and kurtosis, is essential for out-of-sample VaR forecasting in US stock markets.","PeriodicalId":345744,"journal":{"name":"Applied Financial Economics Letters","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131618312","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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