Meeting organised by the General Applications Section of the Royal
Statistical Society:
'New Developments in Empirical Finance'
Free Meeting open to non RSS members
Time : 5 - 7pm, 10th December 2002
Venue : The Royal Statistical Society,
12 Errol Street, London, EC1Y 8LX, UK
Directions: http://www.rss.org.uk/about/direction.html
Tel: +44(0)20 7638 8998
"Momentum and reversal dynamics in US valuation ratios"
Jerry Coakley, Department of Accounting, Finance and Management,
University of Essex
Ana-Maria Fuertes, Faculty of Finance, Cass Business
School, City University
Abstract: We propose an empirical behavioural finance model to investigate
the momentum and reversal dynamics of US valuation ratios including their
unprecedented hike in the 1990s. The estimation and inference results from
a threshold autoregression for aggregate price-dividend and price-earnings
data provide support for mean reversion and asymmetric dynamics over a
linear autoregression with a structural break. They suggest that market
sentiment weakens the link between valuation ratios and fundamentals in a
momentum phase but mean reversion is reestablished in a reversal phase.
The implication is that valuation ratios ultimately must return toward
normal historical levels. Nonlinear impulse response functions corroborate
that innovations exhibit the typical underreaction-overreaction time
profile observed for stock returns, that they decay very slowly and that
shocks during the momentum phase get amplified more than those during the
reversal phase.
"Exchange Rates and Fundamentals: Evidence on the Economic Value of
Predictability"
Abhay Abhyankar, Lucio Sarno and Giorgio Valente (University of Warwick)
speaker: Lucio Sarno (University of Warwick and Centre for Economic Policy
Research, London)
Abstract: A major puzzle in international finance is the inability of
models based on monetary fundamentals to produce better out-of-sample
forecasts of the nominal exchange rate than a naive random walk. While
prior research has generally evaluated exchange rate forecasts using
conventional statistical measures of forecast accuracy, in this paper we
investigate whether there is any economic value to the predictive power of
monetary fundamentals for the exchange rate. We estimate, using a
framework that allows for parameter uncertainty, the economic and utility
gains to an investor who manages her portfolio based on exchange rate
forecasts from a monetary fundamentals model. In contrast to much
previous research, we find that the economic value of the exchange rate
forecasts implied by monetary fundamentals can be substantially greater
than the economic value of forecasts obtained using a random walk across a
range of horizons.
"Classical and Bayesian approaches to continuous time finance models"
Mike Pitt (Warwick University)
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