scholarly journals How Well Do Financial and Macroeconomic Variables Predict Stock Returns: Time-Series and Cross-Sectional Evidence

2006 ◽  
Author(s):  
Anne-Sofie Reng Rasmussen
Keyword(s):  
Time Series ◽  
Stock Returns ◽  
Cross Sectional ◽  
Macroeconomic Variables

scholarly journals The Effect of Foreign Portfolio Equity Purchases on Security Returns in Kenya: Evidence from NSE Listed Financial Institutions

2017 ◽  
Vol 9 (4) ◽  
pp. 202
Author(s):  
Loice Koskei
Keyword(s):  
Time Series ◽  
Panel Data ◽  
Stock Returns ◽  
Financial Institutions ◽  
Sampling Technique ◽  
Ordinary Least Squares ◽  
Capital Requirements ◽  
Cross Sectional ◽  
International Portfolio ◽  
Security Returns

Foreign portfolio inflows increase the liquidity and the volume of finance available for financial institutions. At the same time, as foreign portfolio inflows finances in part the capital requirements of local companies, it can also increase the competitiveness of these companies. A huge surge of the inflows can be very inflationary because this forces the Central Bank of Kenya to expand the country’s monetary base by releasing counterpart domestic currency which eventually feeds into the inflationary process. The main aim of this study was to find out the effect of international portfolio equity purchases on security returns of listed financial institutions in Kenya. The study population was 21 financial institutions listed on the Nairobi Securities Exchange. Using purposive sampling technique the study concentrated on 14 financial institutions. The research design of the study was causal as it is concerned more with understanding the connection between cause and effect relationships. The study adopted panel data regression using the Ordinary Least Squares (OLS) method where the data included time series and cross-sectional. A unit root test was carried in this study to examine stationarity of variables because it used panel data which combined both cross-sectional and time series information. Panel estimation results indicated that international portfolio equity purchases have no effect on stock returns of listed financial institutions in Kenya. The study recommended implementation of regulations and policies that would attract foreign portfolio equity inflows in financial institutions.

Evidence for Some Underlying Time Series Momentum

2014 ◽  
pp. 205-217
Author(s):  
Faten Zoghlami
Keyword(s):  
Time Series ◽  
Stock Market ◽  
Stock Returns ◽  
Excess Returns ◽  
Momentum Strategy ◽  
Cross Sectional ◽  
Times Series ◽  
Before And After ◽  
Main Driver ◽  
Full Rationality

The chapter documents significant and momentary momentum pattern in stock returns times series. Moreover, the chapter gives evidence that this time series momentum is the main driver of the cross-sectional momentum pattern. The temporary time series momentum pattern is midway between the behavioural and rational financial theories. Given the strong and positive autocorrelation in stock returns time series, the authors argue that investors are temporary under reacting, and they progressively find their full rationality. Using monthly returns inherent to all stocks listed on Tunisian stock market, from January 2000 to December 2009, the authors examine momentum strategy’s excess returns before and after considering time series momentum in stocks returns. Results show that momentum strategy is still profitable, but no longer puzzling. Furthermore, the chapter aims to reconcile between the behavioural and the rational financial theories, through the introduction of the progressive investors rationality.

scholarly journals Presence and Sources of Contrarian Profits in the Bangladesh Stock Market

2018 ◽  
Vol 20 (1) ◽  
pp. 84-104
Author(s):  
Shah Saeed Hassan Chowdhury ◽  
Rashida Sharmin ◽  
M Arifur Rahman
Keyword(s):  
Time Series ◽  
Stock Market ◽  
Stock Returns ◽  
Common Factor ◽  
Relative Strength ◽  
Specific Information ◽  
Cross Sectional ◽  
Market Sentiment ◽  
Holding Period ◽  
Momentum Profits

This article, using weekly data for the period 2002 through 2013, investigates the presence of both contrarian and momentum profits and their sources in the Bangladesh stock market. It follows the methodology of Lo and MacKinlay ( Review of Financial Studies, 1990, 3(2), 175–205) to form portfolios with a weighted relative strength scheme (WRSS). The methodology of Jegadeesh and Titman ( Review of Financial Studies, 1995, 8(4), 973–993) is used to decompose the contrarian/momentum profits into three elements: compensation for cross-sectional risk, lead–lag effect in time series with respect to the common factor and the time-series pattern of stock returns. Results provide the evidence of significant contrarian profits for the holding period of one through eight weeks. There is a stronger presence of contrarian profits during 2002–2008 sub-period. The time-series pattern is found to be the main source of contrarian profits, suggesting that idiosyncratic (firm-specific) information is the main contributor to contrarian profits. Interestingly, the influence of idiosyncratic information on such profits has gradually decreased since 2008. Contrarian profits are robust to market sentiment and other systematic risk factors.

scholarly journals The Effect of Foreign Portfolio Equity Sales on Stock Returns in Kenya: Evidence from NSE Listed Financial Institutions

2017 ◽  
Vol 9 (4) ◽  
pp. 185
Author(s):  
Loice Koskei
Keyword(s):  
Time Series ◽  
Panel Data ◽  
Stock Returns ◽  
Financial Institutions ◽  
Unit Root Test ◽  
Sampling Technique ◽  
Ordinary Least Squares ◽  
Cross Sectional ◽  
High Volatility ◽  
Study Population

Fluctuations of foreign portfolio equity intensify risk and unpredictability in financial institutions leading to high volatility. The main aim of this study was to find out the effect of foreign portfolio equity outflows on stock returns of listed financial institutions in Kenya. The study population was 21 financial institutions listed on the Nairobi Securities Exchange. Using purposive sampling technique the study concentrated on 14 financial institutions. The research design of the study was causal as it is concerned more with understanding the connection between cause and effect relationships. The study adopted panel data regression using the Ordinary Least Squares (OLS) method where the data included time series and cross-sectional. A unit root test was carried in this study to examine stationarity of variables because it used panel data which combined both cross-sectional and time series information. Panel estimation results indicated that foreign portfolio equity outflows have no effect on stock returns of listed financial institutions in Kenya. The study recommended implementation of policies that would curb foreign portfolio outflows in financial institutions in order to minimize reversals of foreign portfolio investments. 

More Evidence of Bias in the Differential Timeliness Measure of Conditional Conservatism

2011 ◽  
Vol 86 (5) ◽  
pp. 1765-1793 ◽  
Author(s):  
Panos N Patatoukas ◽  
Jacob K Thomas
Keyword(s):  
Time Series ◽  
Stock Returns ◽  
Joint Effect ◽  
Data Availability ◽  
Cross Sectional ◽  
Conditional Conservatism ◽  
Empirical Regularities

ABSTRACT Despite the conceptual appeal and popularity of the differential timeliness (DT) measure of conditional conservatism proposed in Basu (1997), Dietrich et al. (2007) and Givoly et al. (2007) have identified considerable biases associated with that measure. We renew their call to avoid using the DT measure because it is affected unexpectedly by two empirical regularities—namely, scale is negatively related to (1) deflated mean earnings and (2) variance of stock returns. Even though these regularities are unrelated to conditional conservatism, their joint effect is substantial and pervasive. More importantly, prior findings regarding time-series and cross-sectional variation in differential timeliness are confounded by corresponding variation in these regularities. Data Availability: Data are publicly available from sources identified in the article.

scholarly journals INFLUENCE OF MACROECONOMIC FACTORS ON STOCK PRICES IN POLAND – CROSS SECTION AND TIME SERIES ANALYSIS

2018 ◽  
Author(s):  
Tomasz Schabek ◽  
Nijolė Maknickienė
Keyword(s):  
Time Series ◽  
Stock Returns ◽  
Cross Section ◽  
Stock Prices ◽  
Cross Sectional ◽  
Macroeconomic Factors ◽  
Book Value ◽  
Long Time ◽  
Market Variables ◽  
Macro Variables

The purpose of the study is to determine if the macroeconomic factors influence rates of returns from broad index of stocks in Poland. The study investigates stability of relation between macroeconomic and stock market variables in short and long time period. After running time series regressions we check if selected macro variables are still significant in cross-section of stock returns including control variables like price to book value, capitalization and momentum. The study is based on large sample of individual rates of returns and macroeconomic variables describing real sphere of the economy. Mine findings suggest that the short and long term relation is statistically and economically significant although not stable in the both analysed time horizons. Macroeconomic beta parameter (sensitivity to macro variables measure) is not significant in cross-sectional test proving that traditionally accepted variables (in our study only price to book-value and momentum) still better explain the expected re-turns.

Do residual earnings price ratios explain cross-sectional variations in stock returns?

2015 ◽  
Vol 41 (7) ◽  
pp. 692-713
Author(s):  
Donna M. Dudney ◽  
Benjamas Jirasakuldech ◽  
Thomas Zorn ◽  
Riza Emekter
Keyword(s):  
Time Series ◽  
Regression Model ◽  
Stock Returns ◽  
Risk Ratio ◽  
Cross Sectional ◽  
Content Type ◽  
Absolute Value ◽  
Coefficients Of Variation ◽  
The Absolute ◽  
The Cross

Purpose – Variations in price/earnings (P/E) ratios are explained in a rational expectations framework by a number of fundamental factors, such as differences in growth expectations and risk. The purpose of this paper is to use a regression model and data from four sample periods (1996, 2000, 2001, and 2008) to separate the earnings/price (E/P) ratio into two parts – the portion of E/P that is related to fundamental determinants and a residual portion that cannot be explained by fundamentals. The authors use the residual portion as an indicator of over or undervaluation; a large negative residual is consistent with overvaluation while a large positive residual implies undervaluation. The authors find that stocks with larger negative residuals are associated with lower subsequent returns and reward-to-risk ratio, while stocks with larger positive residuals are associated with higher subsequent returns and reward-to-risk ratio. This pattern persists for both one and two-year holding periods. Design/methodology/approach – This study uses a regression methodology to decompose E/P into two parts – the portion of E/P than is related to fundamental determinants and a residual portion that cannot be explained by fundamentals. Focussing on the second portion allows us to isolate a potential indicator of stock over or undervaluation. Using a sample of stocks from four time periods (1996, 2000, 2001, and 2008, the authors calculate the residuals from a regression model of the fundamental determinants of cross-sectional variation in E/P. These residuals are then ranked and used to divide the stock sample into deciles, with the first decile containing the stocks with the highest negative residuals (indicating overvaluation) and the tenth decile containing stocks with the highest positive residuals (indicating undervaluation). Total returns for subsequent one and two-year holding periods are then calculated for each decile portfolio. Findings – The authors find that high positive residual stocks substantially outperform high negative residual stocks. This is true even after risk adjustments to the portfolio returns. The residual E/P appears to accurately predict relative stock performance with a relatively high degree of accuracy. Research limitations/implications – The findings of this paper provide some important implications for practitioners and investors, particularly for the stock selection, fund allocations, and portfolio strategies. Practitioners can still rely on a valuation measure such as E/P as a useful tool for making successful investment decisions and enhance portfolio performance. Investors can earn abnormal returns by allocating more weights on stocks with high E/P multiples. Portfolios of high E/P multiples or undervalued stocks are found to enjoy higher risk-adjusted returns after controlling for the fundamental factors. The most beneficial performance holding period return will be for a relatively short period of time ranging from one to two years. Relying on the E/P valuation ratios for a long-term investment may add little value. Practical implications – Practitioners and academics have long relied on the P/E ratio as an indicator of relative overvaluation. An increase in the absolute value of P/E, however, does not always indicate overvaluation. Instead, a high P/E ratio can simply reflect changes in the fundamental factors that affect P/E. The authors find that stocks with larger negative residuals are associated with lower subsequent returns and coefficients of variation, while stocks with larger positive residuals are associated with higher subsequent returns and coefficients of variation. This pattern persists for both one and two-year holding periods. Originality/value – The P/E ratio is widely used, particularly by practitioners, as a measure of relative stock valuation. The ratio has been used in both cross-sectional and time series comparisons as a metric for determining whether stocks are under or overvalued. An increase in the absolute value of P/E, however, does not always indicate overvaluation. Instead, a high P/E ratio can simply reflect changes in the fundamental factors that affect P/E. If interest rates are relatively low, for example, the time series P/E should be correspondingly higher. Similarly, if the risk of a stock is low, that stock’s P/E ratio should be higher than the P/E ratios of less risky stocks. The authors examine the cross-sectional behavior of the P/E (the authors actually use the E/P ratio for reasons explained below) after controlling for factors that are likely to fundamentally affect this ratio. These factors include the dividend payout ratio, risk measures, growth measures, and factors such as size and book to market that have been identified by Fama and French (1993) and others as important in explaining the cross-sectional variation in common stock returns. To control for changes in these primary determinants of E/P, the authors use a simple regression model. The residuals from this model represent the unexplained cross-sectional variation in E/P. The authors argue that this unexplained variation is a more reliable indicator than the raw E/P ratio of the relative under or overvaluation of stocks.

Sign in / Sign up

Export Citation Format

Share Document