David McMillan
University of Stirling, Management School, Faculty Member
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Purpose The purpose of this paper is to consider the economic information content within several popular stock market factors and to the extent to which their movements are both explained by economic variables and can explain future... more
Purpose The purpose of this paper is to consider the economic information content within several popular stock market factors and to the extent to which their movements are both explained by economic variables and can explain future output growth. Design/methodology/approach Using US stock portfolios from 1964 to 2019, the authors undertake three related exercises: whether a set of common factors contain independent predictive ability for stock returns, what economic and market variables explain movements in the factors and whether stock market factors have predictive power for future output growth. Findings The results show that several of the considered factors do not contain independent information for stock returns. Further, most of these factors are neither explained by economic conditions nor they provide any predictive power for future output growth. Thus, they appear to contain very little economic content. However, the results suggest that the impact of these factors is mor...
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Recent empirical evidence suggests that stock market returns are predictable from a variety of financial and macroeconomic variables. However, with a few exceptions relatively little evidence exists examining the presence of a long-run... more
Recent empirical evidence suggests that stock market returns are predictable from a variety of financial and macroeconomic variables. However, with a few exceptions relatively little evidence exists examining the presence of a long-run relationship between these variables. The ...
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ABSTRACT This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day frequencies. Initial GARCH model estimates are found to exhibit remaining residual structure and to be inconsistent with theoretical... more
ABSTRACT This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day frequencies. Initial GARCH model estimates are found to exhibit remaining residual structure and to be inconsistent with theoretical temporal aggregation results for all frequencies other than the full day. Further estimates suggest that intra-day volatility is more adequately characterized by a component model which decomposes volatility into short-run effects which dominate intra-day periods and long-run effects which dominate inter-day horizons, and that such components are associated with the arrival of information flows as proxied by volume. This component volatility model is also able to account for all dependence in Long Gilt futures at frequencies of 15 minutes and lower, and in Short Sterling futures at 1 hour and lower.
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Using data spanning 200 years we examine the nature of the long-run cointegrating behaviour between real output and real stock prices. A standard cointegration framework demonstrates that such a long-run relationship exists with both... more
Using data spanning 200 years we examine the nature of the long-run cointegrating behaviour between real output and real stock prices. A standard cointegration framework demonstrates that such a long-run relationship exists with both variables exhibiting significant equilibrium reversion, albeit quicker for stock prices. To further examine the nature of the equilibrium we consider two exercises. First, we consider possible
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... and volatility in L IFFE futures markets OWAIN AP GWILYM, DAVID MCMILLAN} and ALAN SPEIGHT}* ... Applied Financial Economics ISSN 0960±3107 print/ISSN 1466±4305 online © 1999Taylor & Francis Ltd Applied... more
... and volatility in L IFFE futures markets OWAIN AP GWILYM, DAVID MCMILLAN} and ALAN SPEIGHT}* ... Applied Financial Economics ISSN 0960±3107 print/ISSN 1466±4305 online © 1999Taylor & Francis Ltd Applied Financial Economics, 1999, 9, 593±604 593 ...
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ABSTRACT We examine the information content of insider employee stock option trading and its value to market investors using a US dataset. There should be no presumption that option trading would not convey valuable information and... more
ABSTRACT We examine the information content of insider employee stock option trading and its value to market investors using a US dataset. There should be no presumption that option trading would not convey valuable information and indeed, the exercise of option rights is likely to signal insider knowledge. Our results from Granger-causality tests suggest that the actions of directors, officers (senior management) and the other groups, such as company lawyers, do indeed have predictive power for future returns. However, the actions of large shareholders have no additional information content over that which is publicly available. Evidence from predictive regressions largely supports these results, but is often weaker in significance. This seems to arise as the Granger-causality approach utilises a longer lag length and suggests that it takes time for the market to assimilate the information from insider actions. Overall, the results suggest that any outsider who can mimic the behaviour of certain insider groups could benefit in predicting future returns. Finally, the results confirm the belief that the market is unlikely to be strong-form efficient and that this is particularly true with smaller firms. In contrast, larger firms appear to be priced more efficiently than smaller ones.
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This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day frequencies. Initial GARCH model estimates are found to exhibit remaining residual structure and to be inconsistent with theoretical temporal... more
This paper examines volatility in UK Long Gilt and Short Sterling futures over several intra-day frequencies. Initial GARCH model estimates are found to exhibit remaining residual structure and to be inconsistent with theoretical temporal aggregation results for all frequencies other than the full day. Further estimates suggest that intra-day volatitlity is more adequately characterised by a component model which decomposes
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This article examines the issue of stock returns forecasting and in particular extends the analysis of the recently introduced sum of the parts modelling technique. The sum of the parts technique undertakes a first-stage regression... more
This article examines the issue of stock returns forecasting and in particular extends the analysis of the recently introduced sum of the parts modelling technique. The sum of the parts technique undertakes a first-stage regression analysis where the predictor variables themselves are estimated and the fitted values from these equations are then used in the forecast model. We conduct a series of one-step ahead recursive forecasts using the above methodology and compare that to the usual predictive regression approach for 11 markets, and a variety of forecast metrics and tests. Across the full range of markets and forecast measures, our results suggest that no single model dominates. Notably, while the sum of the parts approach often reports a lower Mean Absolute Error (MAE) and Root Mean-Squared Error (RMSE), it is rarely significantly lower than competing forecasts. Similar results are found on the basis of both regression and sign based tests. Thus, across the range of markets the new approach meets with only limited success in providing better forecasts, although it rarely performs significantly worse. Furthermore, in specific markets, the sum of the parts approach does perform well. Notably for Italy, the UK, US and Korea, this approach outperforms the alternate models on all or nearly all measures. Thus, in terms of guiding researchers on the appropriate forecast model, the sum of the parts approach is interesting and does suggest some forecast improvement. However, that is only for specific markets. Hence, in choosing which forecast method to adopt there remains the trade-off between the simplicity of the predictive regression approach and the sum of the parts approach, which is more involved but on occasion more accurate, although not universally so.
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This study reappraises the evidence for nonlinear dependence in the monthly black market exchange returns of the Polish zloty, 1955-1990. Predictive asymmetry is reported in conditional variance such that depreciatory shocks have a... more
This study reappraises the evidence for nonlinear dependence in the monthly black market exchange returns of the Polish zloty, 1955-1990. Predictive asymmetry is reported in conditional variance such that depreciatory shocks have a greater impact on subsequent volatility than appreciatory shocks, jointly with conditional mean nonlinearity of smooth transition between regimes which suggests a simple trading strategy capable of generating positive profit over the sample period. However, support is also found for a competing variance in mean model consistent with a time varying risk premium that is able to rationalize the presence of unexploited profit opportunities, particularly over the latter half of the sample.
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ABSTRACT It is widely acknowledged in the financial literature that trading in asset markets is mainly induced by the arrival of new information. However, the contemporaneous and dynamic empirical relationships between volume and returns... more
ABSTRACT It is widely acknowledged in the financial literature that trading in asset markets is mainly induced by the arrival of new information. However, the contemporaneous and dynamic empirical relationships between volume and returns in futures data, with attendant implications for futures market microstructure, remain largely unresolved due to the inconclusive nature of the extant empirical literature. The present paper examines these relationships from the perspective of competing hypotheses in the context of data for three LIFFE futures contracts over a variety of intra-day frequencies. These results indicate not only a positive contemporaneous relationship between volume and absolute returns but also bidirectional causality for most series and frequencies, consistent with the sequential arrival of information hypothesis, but with different speeds of information dissemination across the three markets. Further examination of the contemporaneous and dynamic relationships between volume and actual returns reveals only limited evidence of any statistically significant associations implying market inefficiency, and consistent with an inverse association between informational asymmetry and market efficiency. Copyright 2002 by Taylor and Francis Group
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Page 1. I. INTRODUCTION Over the past decade, models of the generalized autoregres-sive conditional heteroscedasticity (GARCH) class (Engle, 1982; Bollerslev, 1986) have been widely and extensively applied in modelling ...
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IngentaConnect. ...
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Recent movements in stock and house prices have led to an examination of the presence of bubbles. Whilst, there is extensive research on stock price data, there is relatively less for house prices. This paper uses a present‐value model... more
Recent movements in stock and house prices have led to an examination of the presence of bubbles. Whilst, there is extensive research on stock price data, there is relatively less for house prices. This paper uses a present‐value model for house prices to test for the ...
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ABSTRACT Intra-day periodicity has been widely observed in financial data. Recent research examining intra-day foreign exchange rate volatility dynamics reports that failure to account for this periodicity results in inconsistent GARCH... more
ABSTRACT Intra-day periodicity has been widely observed in financial data. Recent research examining intra-day foreign exchange rate volatility dynamics reports that failure to account for this periodicity results in inconsistent GARCH parameter estimates in relationship to theoretical predictions on temporal aggregation. This article seeks to appraise the generality of this conclusion to the FTSE-100 index futures market. The nature of periodicity is first examined. Subsequent empirical results concerning the temporal aggregation of GARCH models show that the use of returns that are not adjusted for such periodicity are misleading. However, adjustment using a sine-cosine wave method or standardization by mean absolute returns provide more consistent results, the latter method dominating in out-of-sample forecasting of the volatility of successive individual futures contracts. The potential time-to-maturity effects of single contracts are also considered, but are statistically rejected for both forms of periodicity-adjusted data.
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ABSTRACT This paper examines whether variants of the GARCH class of model with the capacity to accommodate volatility asymmetries and volatility feedback are able to provide an adequate representation of non-linear dependency in intraday... more
ABSTRACT This paper examines whether variants of the GARCH class of model with the capacity to accommodate volatility asymmetries and volatility feedback are able to provide an adequate representation of non-linear dependency in intraday FTSE-100 stock index futures returns at the quarter-hour and hourly frequency. Significant variance asymmetry is identified, and such that negative shocks induce a greater response in volatility than equivalent positive shocks, but with the additional effect of subsequently depressing volatility at the 15-minute frequency. In the absence of financial leverage arguments in the market considered, and the absence of a statistically significant volatility feedback effect, such asymmetry is interpreted as indirect evidence for the presence of noise traders, attracted to such markets by low transaction costs and margin requirements. In contrast with previous results using intraday data, a notable absence of remaining structure in asymmetric GARCH models at the hourly frequency is found, but neither symmetric nor asymmetric models are able to fully account for nonlinear dependence at the higher intraday frequency.
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Purpose – Market-based value style equity portfolios do not systematically outperform market-based growth style equity portfolios, despite considerable academic research that suggests that they should. This is an unresolved puzzle in the... more
Purpose – Market-based value style equity portfolios do not systematically outperform market-based growth style equity portfolios, despite considerable academic research that suggests that they should. This is an unresolved puzzle in the long lineage of work on this topic. The purpose of this paper is to question whether portfolio constituency rules employed by active growth and value equity investment managers might explain this puzzle. Design/methodology/approach – The authors use the traditional research design and methodology of Fama and French (1993) to ensure comparability of results to prior research. Further, the authors adapt the return decomposition method of Keim (1999) to specifically answer the question in the research. Findings – The authors find that restrictive constituency rules that omit the smallest, most illiquid stocks improve the performance of both value and growth stock portfolios. However, the authors find the impact of constituency rule restrictions on port...
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Research Interests: Performance Measurement, Alternative Investments, Asset Allocation, Emerging Markets, Investment management, and 9 moreDigital Asset Management, Asset Management, Hedge Fund, Investment Strategies, Expected Shortfall, Software Asset Management, IT Asset Management, Finance and Investment Banking, and Active Management
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This paper re-examines evidence of volatility persistence and long memory in the light of potential time-variation in the unconditional mean of the volatility series. Daily equity volatility is generally regarded as exhibiting long... more
This paper re-examines evidence of volatility persistence and long memory in the light of potential time-variation in the unconditional mean of the volatility series. Daily equity volatility is generally regarded as exhibiting long memory, however, recent evidence has ...