1. |
- Menkveld, Albert J., et al.
(författare)
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Nonstandard Errors
- 2024
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Ingår i: JOURNAL OF FINANCE. - : Wiley-Blackwell. - 0022-1082 .- 1540-6261. ; 79:3, s. 2339-2390
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Tidskriftsartikel (refereegranskat)abstract
- In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty-nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.
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2. |
- Hjalmarsson, Erik, 1975, et al.
(författare)
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Efficiency in housing markets: Do home buyers know how to discount?
- 2006
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Rapport (övrigt vetenskapligt/konstnärligt)abstract
- We test for efficiency in the market for Swedish co-ops by examining the negative relationship between the sales price and the present value of future rents. If the co-op housing market is efficient, the present value of co-op rental payments due to underlying debt obligations of the cooperative should be fully reflected in the sales price. However, we find that, on average, a one hundred kronor increase in the present value of future rents only leads to a 45 to 65 kronor reduction in the sales price; co-ops with higher rents are thus relatively overpriced compared to those with lower rents. Our analysis indicates that pricing tends to be more efficient in areas with higher educated and wealthier buyers. By relying on cross-sectional relationships in the data, our results are less sensitive to transaction costs and other frictions than time-series tests of housing market efficiency.
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3. |
- Hjalmarsson, Erik, 1975, et al.
(författare)
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Efficiency in housing markets: Which home buyers know how to discount?
- 2009
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Ingår i: Journal of Banking and Finance. - : Elsevier BV. - 0378-4266. ; 33:11, s. 2150-2163
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Tidskriftsartikel (refereegranskat)abstract
- We test for efficiency in the Swedish co-op market by examining the negative relationship between the sales price and the present value of future monthly payments or 'rents'. If the co-op housing market is efficient, the present value of co-op rental payments due to underlying debt obligations of the cooperative should be fully reflected in the sales price. However, a one hundred kronor increase in the present value of future rents only leads to an approximately 75 kronor reduction in the sales price. These inefficiencies are larger at the lower end of the housing market and in poorer, less educated regions and appear to reflect both liquidity constraints and the existence of more 'sophisticated' buyers in higher educated areas. Overall, our findings suggest that there is some systematic failure to properly discount the future stream of rent payments relative to the up front sales price.
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4. |
- Bakshi, Gurdip, et al.
(författare)
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Volatility of the Stochastic Discount Factor, and the Distinction between Risk-Neutral and Objective Probability Measures
- 2005
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Rapport (övrigt vetenskapligt/konstnärligt)abstract
- This paper derives a measure that characterizes the distance between the risk-neutral and the objective probability measures for any candidate asset pricing model. We formally show that the distance metric is equal to the volatility of the stochastic discount factor. This theoretical result gives an alternative interpretation to the Hansen-Jagannathan bounds: they provide a lower bound for the distance between the objective and the risk-neutral probability measures. Our empirical application provides support for the notion that the crash of 1987 has widened the wedge between the risk-neutral and the objective probability measures.
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5. |
- Beechey, Meredith, et al.
(författare)
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Testing the expectations hypothesis when interest rates are near integrated
- 2009
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Ingår i: Journal of Banking & Finance. - : Elsevier BV. - 0378-4266 .- 1872-6372. ; 33:5, s. 934-943
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Tidskriftsartikel (refereegranskat)abstract
- Nominal interest rates are unlikely to be generated by unit-root processes. Using data on short and long interest rates from eight developed and six emerging economies, we test the expectations hypothesis using cointegration methods under the assumption that interest rates are near integrated. If the null hypothesis of no cointegration is rejected, we then test whether the estimated cointegrating vector is consistent with that suggested by the expectations hypothesis. The results show support for cointegration in 10 of the 14 countries we consider, and the cointegrating vector is similar across countries. However, the parameters differ from those suggested by theory. We relate our findings to existing literature on the failure of the expectations hypothesis and to the role of term premia.
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6. |
- Benos, Evangelos, et al.
(författare)
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Interactions among High-Frequency Traders
- 2016
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Rapport (övrigt vetenskapligt/konstnärligt)abstract
- Using unique transactions data for individual high-frequency trading (HFT) firms in the U.K. equity market, we examine the extent to which the trading activity of individual HFT firms is correlated with each other and the impact on price effciency. We find that HFT order flow, net positions, and total volume exhibit significantly higher commonality than those of a comparison group of investment banks. However, intraday HFT order flow commonality is associated with a permanent price impact, suggesting that commonality in HFT activity is information-based and so does not generally contribute to undue price pressure and price dislocations.
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7. |
- Benos, Evangelos, et al.
(författare)
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Interactions among High-Frequency Traders
- 2017
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Ingår i: Journal of Financial and Quantitative Analysis. - 0022-1090 .- 1756-6916. ; 52:4, s. 1375-1402
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Tidskriftsartikel (refereegranskat)abstract
- © 2017 Michael G. Foster School of Business, University of Washington. Using unique transactions data for individual high-frequency trading (HFT) firms in the U.K. equity market, we examine the extent to which the trading activity of individual HFT firms is correlated with each other and the impact on price efficiency. We find that HFT order flow, net positions, and total volume exhibit significantly higher commonality than those of a comparison group of investment banks. However, intraday HFT order flow commonality is associated with a permanent price impact, suggesting that commonality in HFT activity is information based and so does not generally contribute to undue price pressure and price dislocations.
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8. |
- Berger, David, et al.
(författare)
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What drives volatility persistence in the foreign exchange market?
- 2009
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Ingår i: Journal of Financial Economics. - : Elsevier BV. - 0304-405X. ; 94:2, s. 192-213
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Tidskriftsartikel (refereegranskat)abstract
- We propose a new empirical specification of volatility that links volatility to the information flow, measured as the order flow in the market, and to the price sensitivity to that information. The time-varying market sensitivity to information is estimated from high-frequency data, and movements in volatility can therefore be directly related to movements in order flow and market sensitivity. Empirically, the model explains a large share of the long-run variation in volatility. Importantly, the time variation in the market's sensitivity to information is at least as relevant in explaining the persistence of volatility as the rate of information arrival itself. This may be evidence of a link between changes over time in the aggregate behavior of market participants and the time-series properties of realized volatility.
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9. |
- Chaboud, A. P., et al.
(författare)
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Rise of the Machines: Algorithmic Trading in the Foreign Exchange Market
- 2014
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Ingår i: Journal of Finance. - : Wiley. - 0022-1082. ; 69:5, s. 2045-2084
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Tidskriftsartikel (refereegranskat)abstract
- We study the impact of algorithmic trading (AT) in the foreign exchange market using a long time series of high-frequency data that identify computer-generated trading activity. We find that AT causes an improvement in two measures of price efficiency: the frequency of triangular arbitrage opportunities and the autocorrelation of high-frequency returns. We show that the reduction in arbitrage opportunities is associated primarily with computers taking liquidity. This result is consistent with the view that AT improves informational efficiency by speeding up price discovery, but that it may also impose higher adverse selection costs on slower traders. In contrast, the reduction in the autocorrelation of returns owes more to the algorithmic provision of liquidity. We also find evidence consistent with the strategies of algorithmic traders being highly correlated. This correlation, however, does not appear to cause a degradation in market quality, at least not on average.
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10. |
- Chaboud, A., et al.
(författare)
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The evolution of price discovery in an electronic market
- 2021
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Ingår i: Journal of Banking & Finance. - : Elsevier BV. - 0378-4266. ; 130
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Tidskriftsartikel (refereegranskat)abstract
- We study the evolution of the price discovery process in the euro-dollar and dollar-yen currency pairs over a ten-year period on the EBS platform, a global trading venue used by both manual and automated traders. We find that the importance of market orders decreases sharply over that period, owing mainly to a decline in the information share from manual trading, while the information share of market orders from algorithmic and high-frequency traders remains fairly constant. At the same time, there is a substantial, but gradual, increase in the information share of limit orders. Price discovery also becomes faster, suggesting improvements in market efficiency. The results are consistent with theoretical predictions that with a lower information advantage, informed traders tend to use more limit orders. Published by Elsevier B.V.
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11. |
- Chiquoine, Benjamin, et al.
(författare)
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Jackknifing stock return predictions
- 2009
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Ingår i: Journal of Empirical Finance. - : Elsevier BV. - 0927-5398. ; 16:5, s. 793-803
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Tidskriftsartikel (refereegranskat)abstract
- We show that the general bias-reducing technique of jackknifing can be successfully applied to stock return predictability regressions. Compared to standard OLS estimation, the jackknifing procedure delivers virtually unbiased estimates with mean squared errors that generally dominate those of the OLS estimates. The jackknifing method is very general, as well as simple to implement, and can be applied to models with multiple predictors and overlapping observations. Unlike most previous work on inference in predictive regressions, no specific assumptions regarding the data generating process for the predictors are required. A set of Monte Carlo experiments show that the method works well in finite samples and the empirical section finds that out-of-sample forecasts based on the jackknife estimates tend to outperform those based on the plain OLS estimates. The improved forecast ability also translates into economically relevant welfare gains for an investor who uses the predictive regression, with jackknife estimates, to time the market.
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12. |
- Farago, Adam, 1984, et al.
(författare)
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Compound Returns
- 2019
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Rapport (övrigt vetenskapligt/konstnärligt)abstract
- We provide a theoretical basis for understanding the properties of compound re-turns. At long horizons, multiplicative compounding induces extreme positive skewness into individual stock returns, an effect primarily driven by single-period volatility. As a consequence, most individual stocks perform very poorly. However, holding just a few stocks (instead of a single one) greatly improves the long-run prospects of an investment strategy, indicating that missing out on the “lucky few” winner stocks is not a great concern. We show analytically how this somewhat counterintuitive result arises from an interaction between compounding, diversification, and rebalancing that has seemingly not been previously noted.
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13. |
- Farago, Adam, 1984, et al.
(författare)
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Long-Horizon Stock Returns Are Positively Skewed
- 2022
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Ingår i: Review of Finance. - : Oxford University Press (OUP). - 1572-3097 .- 1573-692X. ; 27:2, s. 495-538
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Tidskriftsartikel (refereegranskat)abstract
- At long horizons, multiplicative compounding induces strong-to-extreme positive skewness into stock returns; the magnitude of the effect is primarily determined by single-period volatility. Consequently, at horizons greater than 5 years, returns-individual or portfolio-will be positively skewed under reasonable parameterizations. From an investor perspective, the strong positive skewness implies that the mean compound return will serve as a poor guide for typical long-horizon outcomes. Moreover, the large effects of compounding on higher-order moments are shown to affect the validity of Taylor expansions used to approximate preferences for skewness, when applied to returns of annual or longer horizons.
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14. |
- Farago, Adam, 1984, et al.
(författare)
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Small Rebalanced Portfolios Often Beat the Market over Long Horizons
- 2022
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Ingår i: Review of Asset Pricing Studies. - : Oxford University Press (OUP). - 2045-9920 .- 2045-9939. ; 13:2, s. 307-342
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Tidskriftsartikel (refereegranskat)abstract
- The distribution of long-run compound returns to portfolio strategies is greatly affected by periodic rebalancing. Over time, buy-and-hold portfolios gradually lose diversification as extreme long-run skewness in individual stock returns leads to increasingly concentrated holdings. For long investment horizons, small rebalanced portfolios holding only a fraction of all stocks therefore achieve better diversification than much larger marketwide buy-and-hold portfolios. Consequently, over long horizons, rebalanced portfolios tend to outperform buy-and-hold portfolios, and risk-averse investors prefer the former. Empirical results strongly support the theoretical predictions and add further evidence to the strong empirical performance of (small) equal-weighted portfolios.
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15. |
- Farago, Adam, 1984, et al.
(författare)
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Stock Price Co-Movement and the Foundations of Pairs Trading
- 2019
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Ingår i: Journal of Financial and Quantitative Analysis. - 0022-1090 .- 1756-6916. ; 54:2, s. 629-665
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Tidskriftsartikel (refereegranskat)abstract
- We study the theoretical implications of cointegrated stock prices on the profitability of pairs-trading strategies. If stock returns are fairly weakly correlated across time, cointegration implies very high Sharpe ratios. To the extent that the theoretical Sharpe ratios are too large, our results suggest that either i) cointegration does not exist pairwise among stocks, and pairs-trading profits are a result of a weaker or less stable dependency structure among stock pairs, or ii) the serial correlation in stock returns stretches over considerably longer horizons than is usually assumed. Empirically, there is little evidence of cointegration, favoring the first explanation.
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16. |
- Hjalmarsson, Erik, 1975, et al.
(författare)
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A micro-data analysis of households’ expectations of mortgage rates
- 2019
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Ingår i: Economics Letters. - : Elsevier BV. - 0165-1765 .- 1873-7374. ; 185
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Tidskriftsartikel (refereegranskat)abstract
- We analyse micro-level survey data, ranging from 2010 to 2017, on Swedish households’ mortgage-rate expectations. Our key finding is that expectations at the longest horizon are significantly related to age, where the youngest age group has the lowest expectations.
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17. |
- Hjalmarsson, Erik, 1975, et al.
(författare)
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Anchoring in surveys of household expectations
- 2021
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Ingår i: Economics Letters. - : Elsevier BV. - 0165-1765 .- 1873-7374. ; 198
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Tidskriftsartikel (refereegranskat)abstract
- We assess whether the concept of anchoring - where a respondent's answer is affected by the reference number stated in the survey question - is related to the characteristics of the respondent. Using a survey of household expectations of Swedish housing prices, we find significant differences in observed anchoring across groups reflecting age, income, homeownership and sex. Implications for the interpretation of survey results are discussed. (C) 2020 The Author(s). Published by Elsevier B.V.
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18. |
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19. |
- Hjalmarsson, Erik, 1975, et al.
(författare)
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Dividend Growth Does Not Help Predict Returns Compared To Likelihood-Based Tests: An Anatomy of the Dog
- 2021
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Ingår i: Critical Finance Review. - : Now Publishers. - 2164-5744 .- 2164-5760. ; 10:3, s. 445-464
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Tidskriftsartikel (refereegranskat)abstract
- The dividend-growth based test of return predictability, proposed by Cochrane (2008), is similar to a likelihood-based test of the standard return-predictability model, treating the autoregressive (AR) parameter of the dividend-price ratio as known. In comparison to standard OLS-based inference, both tests can achieve power gains by using restrictions or prior information on the value of the AR parameter. When compared to the likelihood-based test, there are no power advantages for the dividend-growth based test. In common implementations, with the AR parameter set equal to the corresponding OLS estimate, Cochrane's test suffers from severe size distortions.
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20. |
- Hjalmarsson, Erik, 1975
(författare)
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Does the Black- Scholes formula work for electricity markets? A nonparametric approach
- 2003
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Rapport (övrigt vetenskapligt/konstnärligt)abstract
- Despite the high volatilities recorded for electricity prices, there seems to be little demand for options on electricity. One reason for the disinterest in electricity options could arise from uncertainty about how to price these options. This study uses recent econometric advances to nonparametrically estimate correct prices for electricity options and compare these to the Black-Scholes prices. The main finding is that although the nonparametric estimates deviate significantly from the Black-Scholes prices, it would be difficult to find an alternative parametric model that performs better. Thus, from a practical viewpoint, the Black-Scholes prices appear to be the best available.
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21. |
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22. |
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23. |
- Hjalmarsson, Erik, 1975, et al.
(författare)
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Heterogeneity in households' expectations of housing prices - evidence from micro data
- 2020
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Ingår i: Journal of Housing Economics. - : Elsevier BV. - 1051-1377 .- 1096-0791. ; 50
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Tidskriftsartikel (refereegranskat)abstract
- Expectations about future housing prices are arguably an important determinant of actual housing prices, and an important input in decisions on whether and how to transact in the housing market. Using micro-level survey data on Swedish households, we analyse households' expectations of housing prices and how these expectations relate to the characteristics of the respondents. Results show that age is found to be significantly related to housing-price expectations, with the youngest households - whose adulthood largely corresponds to the extended period of rapid housing-price growth in Sweden - having the highest housing-price expectations. This is consistent with the hypothesis that expectations are influenced by personal experiences. Our findings suggest that aggregate measures of expectations might hide important features of the data, which could be of interest to policy makers when choosing regulatory actions or formulating macroprudential policies.
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24. |
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25. |
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26. |
- Hjalmarsson, Erik, 1975, et al.
(författare)
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Long-run predictability tests are even worse than you thought
- 2022
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Ingår i: Journal of Applied Econometrics. - : Wiley. - 0883-7252 .- 1099-1255. ; 37:7, s. 1334-1355
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Tidskriftsartikel (refereegranskat)abstract
- We derive asymptotic results for the long-horizon ordinary least squares (OLS) estimator and corresponding t$$ t $$-statistic for stationary autoregressive predictors. The t$$ t $$-statistic-formed using the correct asymptotic variance-together with standard-normal critical values result in a correctly-sized test for exogenous predictors. For endogenous predictors, the test is size distorted regardless of the persistence in the predictor and adjusted critical values are necessary. The endogeneity problem stems from the long-run estimation and is distinct from the ordinary persistence-dependent "Stambaugh" bias. The bias for fully stationary predictors appears not to have been previously noted and adds further difficulty to inference in long-run predictive regressions.
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27. |
- Hjalmarsson, Erik, 1975
(författare)
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Maximal predictability under long-term mean reversion
- 2018
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Ingår i: Journal of Empirical Finance. - : Elsevier BV. - 0927-5398. ; 45:January 2018, s. 269-282
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Tidskriftsartikel (refereegranskat)abstract
- I analyse the relationship between two stylized empirical facts for stock returns: Unconditional long-term mean reversion and predictability by variables such as the dividend-price ratio or the short-term interest rate. In particular, I show that if one imposes that returns satisfy long-term mean reversion, this implies an upper bound on the predictive regression R-square. If a predictive regression is intended as a motivational building block for theoretical modelling, and the R-square bound is violated, one should recognize that the implied returns process violate long-term mean reversion. Empirical results show that the proposed bound is binding for several leading predictors.
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28. |
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29. |
- Hjalmarsson, Erik, 1975
(författare)
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Nord Pool: A Power Market Without Market Power
- 2000
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Rapport (övrigt vetenskapligt/konstnärligt)abstract
- Regulatory reform in the Nordic electricity-supply markets has resulted in a single integrated Nordic electricity market. This paper performs an econometric study of market power in the spot market of Nord Pool, the joint Nordic power exchange. I use a dynamic extension of the Bresnahan-Lau model, and weekly data for the period from 1996 through April 1999. To my knowledge, this is the first study of power markets that is not able to reject the hypothesis of perfect competition. The most likely reason for this absence of market power is the low ownership concentration in generation in the integrated Nordic electricity market.
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30. |
- Hjalmarsson, Erik, 1975
(författare)
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On the Predictability of Global Stock Returns
- 2005
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Rapport (övrigt vetenskapligt/konstnärligt)abstract
- Stock return predictability is a central issue in empirical finance. Yet no comprehensive study of international data has been performed to test the predictive ability of lagged explanatory variables. In fact, most stylized facts are based on U.S. stock-market data. In this paper, I test for stock return predictability in the largest and most comprehensive data set analyzed so far, using four common forecasting variables: the dividend- and earnings-price ratios, the short interest rate, and the term spread. The data contain over 20,000 monthly observations from 40 international markets, including markets in 22 of the 24 OECD countries. I also develop new asymptotic results for long-run regressions with overlapping observations. I show that rather than using auto-correlation robust standard errors, the standard t-statistic can simply be divided by the square root of the forecasting horizon to correct for the effects of the overlap in the data. Further, when the regressors are persistent and endogenous, the long-run OLS estimator suffers from the same problems as does the short-run OLS estimator, and similar corrections and test procedures as those proposed by Campbell and Yogo (2003) for the short-run case should also be used in the long-run; again, the resulting test statistics should be scaled due to the overlap. The empirical analysis conducts time-series regressions for individual countries as well as pooled regressions. The results indicate that the short interest rate and the term spread are fairly robust predictors of stock returns in OECD countries. The predictive abilities of both the short rate and the term spread are short-run phenomena; in particular, there is only evidence of predictability at one and 12-month horizons. In contrast to the interest rate variables, no strong or consistent evidence of predictability is found when considering the earnings-and dividend-price ratios as predictors. Any evidence that is found is primarily seen at the long-run horizon of 60 months. Neither of these predictors yields any consistent predictive power for the OECD countries. The interest rate variables also have out-of-sample predictive power that is economically significant; the welfare gains to a log-utility investor who uses the predictive ability of these variables to make portfolio decisions are substantial.
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31. |
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32. |
- Hjalmarsson, Erik, 1975
(författare)
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Predicting global stock returns
- 2010
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Ingår i: Journal of financial and quantitative analysis. - 0022-1090. ; 45:1, s. 49-80
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Tidskriftsartikel (refereegranskat)abstract
- I test for stock return predictability in the largest and most comprehensive data set analyzed so far, using four common forecasting variables: the dividend-price (DP) and earnings-price (EP) ratios, the short interest rate, and the term spread. The data contain over 20,000 monthly observations from 40 international markets, including 24 developed and 16 emerging economies. In addition, I develop new methods for predictive regressions with panel data. Inference based on the standard fixed effects estimator is shown to suffer from severe size distortions in the typical stock return regression, and an alternative robust estimator is proposed. The empirical results indicate that the short interest rate and the term spread are fairly robust predictors of stock returns in developed markets. In contrast, no strong or consistent evidence of predictability is found when considering the EP and DP ratios as predictors. Copyright © Michael G. Foster School of Business, University of Washington 2010.
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33. |
- Hjalmarsson, Erik, 1975
(författare)
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Predictive regressions with panel data
- 2005
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Rapport (övrigt vetenskapligt/konstnärligt)abstract
- This paper analyzes econometric inference in predictive regressions in a panel data setting. In a traditional time-series framework, estimation and testing are often made diffcult by the endogeneity and near persistence of many forecasting variables; tests of whether the dividend-price ratio predicts stock returns is a prototypical example. I show that, by pooling the data, these econometric issues can be dealt with more easily. When no individual intercepts are included in the pooled regression, the pooled estimator has an asymptotically normal distribution and standard tests can be performed. However, when fixed effects are included in the specification, a second order bias in the fixed effects estimator arises from the endogeneity and persistence of the regressors. A new estimator based on recursive demeaning is proposed and its asymptotic normality is derived; the procedure requires no knowledge of the degree of persistence in the regressors and thus sidesteps the main inferential problems in the time-series case. Since forecasting regressions are typically applied to financial or macroeconomic data, the traditional panel data assumption of cross-sectional independence is likely to be violated. New methods for dealing with common factors in the data are therefore also developed. The analytical results derived in the paper are supported by Monte Carlo evidence.
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34. |
- Hjalmarsson, Erik, 1975
(författare)
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Some curious power properties of long-horizon tests
- 2012
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Ingår i: Finance Research Letters. - : Elsevier BV. - 1544-6123. ; 9:2, s. 81-91
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Tidskriftsartikel (refereegranskat)abstract
- Based on simulations and asymptotic results, I highlight three distinct properties of long-horizon predictive tests. (i) The asymptotic power of long-horizon tests increases only with the sample size relative to the forecasting horizon. Keeping this ratio fixed as the sample size increases does not lead to any power gains asymptotically. (ii) Although the power of long-horizon tests increases with the magnitude of the slope coefficient for alternatives close to the null hypothesis, there are no gains in power as the slope coefficient grows large. That is, the power curve is asymptotically horizontal when viewed as a function of the slope coefficient. (iii) For endogenous regressors—i.e., when the innovations to the regressand are contemporaneously correlated with the innovations to the regressor—traditional tests based on the standard long-run OLS estimator result in power curves that are sometimes decreasing in the magnitude of the slope coefficient.
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35. |
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36. |
- Hjalmarsson, Erik, 1975, et al.
(författare)
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Testing Return Predictability with the Dividend-Growth Equation: An Anatomy of the Dog
- 2019
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Rapport (övrigt vetenskapligt/konstnärligt)abstract
- The dividend-growth based test of return predictability, proposed by Cochrane [2008, Review of Financial Studies 21, 1533-1575], is similar to a likelihood-based test of the standard return-predictability model, treating the autoregressive parameter of the dividend-price ratio as known. In comparison to standard OLS-based inference, both tests achieve power gains from a strong use of the exact value pos- tulated for the autoregressive parameter. When compared to the likelihood-based test, there are no power advantages for the dividend-growth based test. In common implementations, with the autoregressive parameter set equal to the corresponding OLS estimate, Cochrane's test also suffers from severe size distortions.
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37. |
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