Search

We investigate the joint ability of fundamental-based and market-based news to explain the anomalous underperformance of stocks with high idiosyncratic volatility (high IVOL). An out-of-sample prediction of future profitability is adopted as a proxy for fundamental–based news while market-based news is represented by the 52-week high price ratio. A sample of UK stocks over the period January 1996 to December 2017 is analysed. The empirical results indicate that both the fundamental-based projected profitability and the 52-week high price ratio are important in explaining the IVOL anomaly. In contrast, individually, neither variable fully accounts for the anomaly. This relation is more pronounced following a period of high sentiment and during an upmarket. Further results suggest that underreaction lies at the heart of this explanation. [ABSTRACT FROM AUTHOR]

Offshore wind is poised for huge growth in the coming years, the UK government has set targets of 40 GW of offshore wind, including 1 GW of floating wind, to be installed in the UK by 2030. Many proposed wind development sites are in deeper waters, farther from shore and will therefore need to be developed as floating wind sites. Developing sites in deeper waters provides access to higher, more consistent wind speeds, however this also means increased wave heights and tougher operating conditions. This makes the challenge of site accessibility critical to the goal of lowering the costs of offshore wind. Accessibility is the amount of time that vessels can safely access a given site. The objective of this study was to make a comparison of the accessibility of potential future floating wind sites to existing fixed bottom wind farm sites. Accessibility was calculated by developing Matlab code using established techniques and definitions found in the literature. A case study was then completed using sites in Scottish waters proposed for development as part of the Scotwind leasing plan. The majority of the Scotwind sites will need to be developed as floating wind sites due to the large water depths. This study assesses the accessibility of the Scotwind leasing sites and compares them to a typical fixed bottom site. The study found that accessibility will be a greater challenge for floating farm wind sites compared to fixed bottom sites. Increased access to vessels that can operate in larger wave heights will likely be necessary to operate and maintain floating wind farm sites. [ABSTRACT FROM AUTHOR]

We forecast realized volatility extending the heterogeneous autoregressive model (HAR) to include implied volatility (IV), the leverage effect, overnight returns, and the volatility of realized volatility. We analyze 10 international stock indices finding that, although a simple HAR model augmented with IV (HAR‐IV) is more accurate than any HAR model excluding it, all markets support further extensions of the HAR‐IV model. More accurate forecasts are found using overnight returns in all markets except the UK, the volatility of realized volatility in the US, and the leverage effect in five markets. A value‐at‐risk exercise supports the economic significance of our findings. [ABSTRACT FROM AUTHOR]

The offshore wind industry is growing rapidly around the world. Many governments have set ambitious targets for growth to achieve their decarbonisation goals. As the industry grows it can become more challenging to build and operate wind farms safely. Wind farms are being constructed further from shore in tougher weather and sea conditions. In the UK, the Health and Safety Executive has raised concerns about safety performance. This paper aims to review the current state of health and safety in the offshore wind industry. It reviews the latest research, injury statistics and the state of legislation covering the sector. It also considers how the risk profile of the industry may change in coming years. The paper finds there is a need for more research specific to the safety challenges of offshore wind. Injury rate statistics show that performance is 3–4 times worse than comparable industries, and industry reports do not currently include large parts of the sector. Rapid growth and the implementation of new technologies will create additional challenges. Regulators should consider the implementation of industry specific safety legislation to manage the unique challenges of offshore wind. [Display omitted] • Injury rates are up to 4 times higher than the offshore oil and gas industry. • Risk exposure to workers is expected to increase due to growth and technology. • Safety legislation requires reform to address specific industry risks. • Innovations from other industries in safety management should be adopted. [ABSTRACT FROM AUTHOR]

How does competition in firms' product markets influence stock returns? We examine this question using firms domiciled in the UK. We find that firms in less concentrated industries earn higher returns, even after controlling for the well-known determinants of the cross-section of UK stock returns. Furthermore, we suggest a novel asset pricing model that explicitly incorporates industry concentration as a distinguished risk factor capturing important features of product markets. Our results link the explanatory power of R&D activity of stock returns to product market structure. Also, we suggest an explanation for value premium on the basis of product market structure that favours barriers to entry interpretation for the higher returns obtained by less concentrated industries. [ABSTRACT FROM AUTHOR]

We perform a comprehensive examination of the recursive, comparative predictive performance of linear and nonlinear models for UK stock and bond returns. We estimate Markov switching, threshold autoregressive (TAR) and smooth transition autoregressive (STR) regime switching models and a range of linear specifications including models with GARCH type specifications. Results demonstrate UK asset returns require nonlinear dynamics to be modelled with strong evidence in favour of Markov switching frameworks. Our results appear robust to the choice of sample period, changes in loss functions and to the methodology employed to test for equal predictive accuracy. The key findings extend to a similar sample of US data. [ABSTRACT FROM AUTHOR]

This article examines the nature of time variation within the stock return predictive regression for the United Kingdom. We consider six predictor variables but find significant in-sample evidence of predictive power for only three: the bond–equity yield ratio, the dividend yield and the price–earnings ratio, and out-of-sample evidence for the latter two. Notwithstanding this, we are able to identify substantial evidence of time variation within predictive power for all variables. However, such time variation is only linked to the state of the macroeconomy for the same three variables. Nonetheless, we are able to identify macroeconomic regimes where predictability for each of these three variables is stronger. Specifically, predictive power is stronger for the bond–equity yield ratio when output is rising and stronger for the dividend yield and price–earnings ratio when output is falling. We can use this information to build an improved prediction model by allowing for the variables, including AR terms, to enter the model according to the state of the world. However, we are still unable to beat the market in an out-of-sample forecast exercise, except with the bond–equity yield and with a mix of this variable and an AR(1). Nonetheless, the results do point to the conclusion that stock market predictability is present for the United Kingdom and that it is time-varying, the knowledge of which can improve the forecast models. [ABSTRACT FROM PUBLISHER]

We use data on 57 firms over the period 1980-2007 to investigate profit persistence. We extend the literature by considering whether the parameter governing persistence varies between positive and negative profits (relative to normal). Thus, we are able to differentiate between entry and exit as conduits of the competitive model. Such information may be of importance to policy-makers in establishing competition legislation. We find firms with profits above normal are firms that have high barriers to entry and exit while firms with below-normal profits have low barriers to entry and exit. [ABSTRACT FROM AUTHOR]

This article sets out to examine the predictive content of the bond-equity yield ratio (BEYR) for sector-level stock returns. Initial results using the Hoare-Govett rule suggest that for the vast majority of sectors an increase in returns over a buy and hold strategy can be made by using the BEYR as a market-timing rule. Further, by estimating a non-linear model consistent with the reverting features of the ratio and one that is able to directly estimate the threshold points to determine switching between buy and sell signals for equity allows for an improved performance, and suggests that further enhanced trading returns can be made. As a final exercise, a panel estimation approach both for the BEYR itself and for predicting sector returns again support the use of the BEYR as a predictor for returns, and that a non-linear approach is superior to the linear model. In addition, the results here suggest that the BEYR is a predictor of sector stock returns. Moreover, its market-timing power is enhanced when estimated in a non-linear model that estimates the threshold values to determine switching between buy and sell signals. The results here are thus of potential interest not only to academics concerned with issues of market predictability and efficiency, but also to market practitioners in devising trading strategies. [ABSTRACT FROM AUTHOR]

In this article we examine the persistent nature of the 3-month UK real interest rate for the period 1957:Q2 to 2008:Q2. We employ unit root and cointegration tests, confidence intervals for the sum of the Autoregressive (AR) coefficient, fractional integration tests, structural break tests and threshold modelling. Evidence from both unit root tests and AR modelling support the view that the real rate is nonstationary. Similarly, and in contrast to previous literature, the fractional integration test supports covariance nonstationarity, although there is evidence of mean reversion. Evidence from structural break tests support stationary behaviour, but only if we allow for three or more breaks, which may not be defendable on economic grounds. Finally, stationary behaviour is supported by a nonlinear exponential smooth transition model, which suggests that the real rate behaves in a random walk fashion when the rate is close to equilibrium but exhibits strong mean reversion when the disequilibrium becomes large. [ABSTRACT FROM AUTHOR]

The article discusses the aspects of the Bible and the moral reasoning of Christians in relation to the issues of peace, justice, and reconciliation during the conflict in Northern Ireland. It offers a brief summary of the inseparable nature of religion and political identity during the conflict in the said region. Also highlighted is the Parushev model of moral reasoning in the context of conflict resolution.

Since the mid-1990s the dividend yield reached and largely remained at a historically low level, even accounting for the stock market correction in the early 2000s. This appears to suggest that prices are overvalued. However, alternative valuation models based upon comparing bond and equity yields suggest that, if anything, prices are undervalued. This paper seeks to provide answers to this seeming paradox. Preliminary results suggest non-stationarity of the dividend yield and bond yield–equity yield differential, although the yield ratio is possibly stationary, casting doubt on mean reversion. Evidence from structural breakpoint testing suggests that all measures have been subjected to several mean level shifts throughout the sample period, and notably within the last decade, such that each series now fluctuates around a mean level lower than that experienced previously. Thus, the lower dividend yield and lower bond–equity ratio do not necessarily imply equity mispricing but that concepts of pre-existing normal levels no longer apply. In explaining why higher equity prices are supported, we note that the last decade has seen a period of historically low and stable inflation and interest rates. Further, there is a strong positive relationship between inflation and the dividend yield. This more stable economic environment has led to more accurate valuation of stocks and lower required rates of return, thus supporting higher prices. [ABSTRACT FROM AUTHOR]

Recent stock price movements have led to a re-examination of the present value model. Typically, empirical studies have employed a long span of US stock market index data, and have attributed a failure to detect cointegration to the presence of bubbles. This study considers UK firm-level data, and implements panel unit root and cointegration tests. Recent panel tests that allow for cross-sectional dependence control for factors such as bubbles that may result in temporary deviations from the long-run price-dividend relationship. The panel test results largely support the present value model, yielding evidence of cointegration between real prices and dividends. [ABSTRACT FROM AUTHOR]

The UK government's 2003 White Paper 'The Future of Air Transport' provides a strategic framework for the sustainable development of airport capacity over the next 30 years. It has brought much needed clarity to the planning process and enhanced stability for investment. Delivering the White Paper presents particular challenges in the context of the UK's independently regulated and largely privatised aviation sector. Government has a crucial role in the facilitation and leadership of a wide range of delivery partners at local, national and international levels. Through this cooperative way of working, progress is being made on delivering the additional airport capacity needed to maintain a successful and competitive economy, while ensuring that aviation reflects the full costs of its environmental impacts. Delivering a nationally significant strategy, such as the Air Transport White Paper, requires long-term commitment, but also flexibility to respond to changes in political priorities, economic and social factors, and -- critically -- public attitudes and values. [ABSTRACT FROM AUTHOR]

This paper extends research concerned with the evaluation of alternative volatility forecasting methods under value at risk (VaR) modeling in the context of the Basle Committee adequacy criteria by broadening the class of generalized autoregressive conditional heteroscedasticity models, to include both asymmetric models and long memory models, in addition to the statistical methods commonly used in financial institutions. In the analysis of daily index data for eight emerging stock markets in the Asia – Pacific region, in addition to US and UK benchmark comparators, we find both asymmetric and long memory features to be important considerations in providing improved VaR estimates that minimize occasions when the minimum capital requirement identified by the VaR methodology would have fallen short of actual trading losses. More generally, our results illustrate the importance of adopting the stringent probability level stipulated in the regulatory framework, and of using fully out-of-sample forecast evaluation methods for the identification of forecasting models that mitigate the likelihood of inappropriately small VaRs and consequent regulatory intervention. [ABSTRACT FROM AUTHOR]

Three panel unit root tests are applied to a 31-year firm size, growth and profit rate data set for 96 large, quoted UK firms. All tests reject the unit root null for log size if the Augmented Dickey Fuller autoregressions exclude a linear time trend. If a linear trend is included, the results are more ambiguous and appear to differ systematically between tests. The view that firm growth is either random or near-random does not receive unequivocal support in all tests. There is however strong and consistent evidence of mean-reversion in profit rates. [ABSTRACT FROM AUTHOR]

Recent empirical finance research has suggested the potential for series to exhibit non-linear adjustment to equilibrium. This paper examines a variety of such models and compares their performance with the linear alternative. Using short- and long-term UK interest rates we report evidence that a logistic smooth transition error-correction model is best able to characterize the data and to provide superior out-of-sample forecasts over both linear and non-linear alternatives. This model suggests that market dynamics differ depending on whether the deviations from long-run equilibrium are above or below the threshold value. Further, the logistic smooth transition model indicates that agents’ actions imply quicker reversion to equilibrium when the long rate exceeds the short rate, and supports a central bank inflation targeting interpretation of the non-linearity. [ABSTRACT FROM AUTHOR]

The trade-off between the variability of inflation and that of output is estimated for the UK, using several different approaches to obtain the output gap, and then for a range of other countries; in all cases the trade-off retains the `sharp turning point' found for the UK and US by other authors. [ABSTRACT FROM AUTHOR]

Linear predictability of stock market returns has been widely reported. However, recently developed theoretical research has suggested that due to the interaction of noise and arbitrage traders, stock returns are inherently non-linear, whereby market dynamics differ between small and large returns. This paper examines whether an exponential smooth transition threshold model, which is capable of capturing this non-linear behaviour, can provide a better characterization of UK stock market returns than either a linear model or an alternate non-linear model. The results of both in-sample and out-of-sample specification tests support the exponential smooth transition threshold model and hence the belief that investor behaviour does differ between large and small returns. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

Results of recent studies for the USA, Canada and Australia have suggested that the term structure of interest rates contains predictive power for real GDP growth, and that this result is robust to the inclusion of additional variables, such as stock market indicators and lagged growth rates. Using a k-quarter growth rate model this paper attempts to ascertain whether similar results are obtained for the UK. In short, the results suggested here state that although the interest rate spread between the 10-year governemt bond and the 3-month T-bill contains some predictive power for UK output growth, it is less than reported for other countries. Finally, this result is robust to the inclusion of lagged growth and the FT-ALL index return, the latter leading to a marginal improvement in predictive power. [ABSTRACT FROM AUTHOR]

The paper analyses the forecasting performance of a variety of statistical and econometric models of UK FTA All Share and FTSE100 stock index volatility at the monthly, weekly and daily frequencies under both symmetric and asymmetric loss functions. Under symmetric loss, results suggest that the random walk model provides vastly superior monthly volatility forecasts, while random walk, moving average, and recursive smoothing models provide moderately superior weekly volatility forecasts, and GARCH, moving average and exponential smoothing models provide marginally superior daily volatility forecasts. If attention is restricted to one forecasting method for all frequencies, the most consistent forecasting performance is provided by moving average and GARCH models. More generally, results suggest that previous results reporting that the class of GARCH models provide relatively poor volatility forecasts may not be robust at higher frequencies, failing to hold here for the crash-adjusted FTSE100 index in particular. [ABSTRACT FROM AUTHOR]

Examines the volatility decomposition in intra-day FTSE-100 stock index futures market returns data in Great Britain. Use of the permanent-transitory component variance model; Coexistence of a transitory component to volatility and permanent volatility at intra-day level; Hourly volatility of the transitory and permanent components.

This paper examines the intraday behaviour of five-minute FTSE-100, Short Sterling and Long Gilt LIFFE futures returns volatility and volume. The intraday patterns identified exhibit a U-shape, significantly affected by UK and US macroeconomic news releases. Evidence from estimation of a GMM system for volatility and volume supports a significant positive and contemporaneous correlation between volatility and volume, although lagged volume is also significant in the volatility equation. Further, there is strong evidence of bi-directional causality on the basis of Granger-causality testing. These results are found to be robust to the adjustment of volatility and volume for macroeconomic news effects, and in the case of the Granger-causality tests to a variety of temporal horizons. [ABSTRACT FROM AUTHOR]

Reappraises the stylised facts of the contemporary business cycle in the United Kingdom, while focusing on real business cycle (RBC) considerations. Standard approach to the identification of such stylised facts; What business cycle stylised facts are associated with; Information on RBC models.

Reassesses reported tests for asymmetries in British consumers' expenditure relative to trend. Disaggregation of consumers' expenditures into broad categories of durable and non-durable goods and services and according to 13 consumption categories; Application of sensitivity of test results to alternative detrending methods.

The purpose of this study is to investigate the role of macroeconomic conditions and predict the base performance of a firm as represented by Return on Asset (ROA) and macroeconomic variables. The predictor variables used in the construction of the models were selected using PCA. For the full sample and the industry-specific sample of data, the regression model evaluated the significance of macroeconomic factors based on t-statistics and theR2test. The results of the study are promising. The full sample and five out of six industry variable models incorporating lead–lag relationships have anR2between 0.79 and 0.95. For the full sample, the results of this study indicate that macroeconomic conditions should be incorporated when predicting firms’ performance. For the industry-specific models, the empirical results present a mixed picture of the effect of macroeconomic factors and the lagged ROA on firm performance and the same conclusion for full sample cannot be reached easily when looking at the industry specific results. The results of this paper provide a compelling argument that firm performance is a function of the prior year ROA, and macro-economic variables and that macroeconomic variables and prior year ROA can have impact on future firm performance measure by ROA. [ABSTRACT FROM AUTHOR]