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Markets are not random; therefore, past stock prices and statistical ranges can be used to find technical trading patterns and make forecasts. Data from the United Kingdom's stock market are used here to replicate and extend on the research of A. Lo and others.

A comprehensive study of the level of persistence in the UK's equity market revealed that the differences between portfolio and security variance ratios can be reconciled through the use of elements of the portfolio theory. This technique has established their mathematical linkages, which proved that variance ratios of portfolio returns can predict the behavior of the returns of their component securities that is not evident from the calculation of the variance ratios of the security returns.

The autocorrelation in portfolio returns is caused by non-synchronous trading among the component securities. A study has been conducted in order to assess how the autocorrelation structure of UK portfolio returns is linked to dynamic interrelationship among the component securities of that portfolio. Results indicate that trading rule techniques applied to portfolio returns do not generate economic profits. They simply respond to the patterns of non-synchronous trading among the component securities.

The United Kingdom market for government securities (gilts) can be examined using a two-factor model of interest rate term structure for 1982 to 1996. The forward premium for UK long-term gilts can be decomposed into different parts showing expectations of interest rates, risk premia linked to underlying factors and terms showing the effect of changes in the factors on the forward yield curve. Research that does not locate a risk premium for UK interest rates may have neglected the variance bias.

The size of the firm has an effect on the distinct features of volatility in the UK stock market. The asymmetry and cross-autocorrelations of the return series suggest that small firm returns fail to indicate the future returns from large firm shares. However, large firm returns appear to indicate the future returns from small firms. Moreover, the autocorrelated and leptokurtic returns to small firms indicate that trading in small firm shares is infrequent compared to the trading in large firm shares.

We examine the effects of quantitative easing (QE) on the volatility of and correlation between stocks, short-term bonds and long-term bonds in the UK. Using a multivariate dynamic conditional correlation generalised autoregressive conditional heteroscedasticity model, we find that volatility in each of the markets experiences a significant increase during the financial crisis that is reversed during the first phase of QE. We find limited effects of the specific occurrence or intensity of QE activity on either the volatility or correlations for these asset classes, but some evidence that volatility persistence experienced temporary shifts during the sample period. We find short-term variability in the correlations between the markets during the crisis and QE periods, but cannot reject the hypothesis that correlations were constant throughout the sample period. [ABSTRACT FROM AUTHOR]

This paper investigates the impact that the removal of exchange controls within major European economies has had on the interdependence of European equity markets. For five years prior to the removal of exchange controls and five years following their removal, we use impulse responses and variance decompositions from vector autoregressions to illustrate that European equity markets have become substantially more integrated after the removal of exchange controls. We undertake further tests that demonstrate that, even if we allow for parallel macroeconomic harmonization, the removal of exchange controls has been a major cause of increased equity market integration within Europe., I. INTRODUCTION This paper will investigate the impact that the relaxation of exchange controls within European economies has had on the interdependence of European equity markets. We suggest that the [...]

We provide evidence of the nature of the transmission of volatility within the UK stock market. We find a distinct asymmetry in that shocks to the return volatility of a portfolio of relatively large firms influence the future volatility of a portfolio of relatively small firms, but find that the reverse is not the case. The characteristics of the volatility process suggest that this result is not caused by think trading. [ABSTRACT FROM AUTHOR]