Ólan Thomas Henry

University of Liverpool | UoL · University of Liverpool Management School (ULMS)

We investigate the role of financial uncertainty in forecasting aggregate stock market returns. Our results suggest that financial uncertainty, along with its change, are more powerful predictors of excess US monthly stock market returns than 14 macroeconomic predictors commonly used in the literature. Financial uncertainty is shown to outperform s...

We examine the importance of periods of high versus low financial uncertainty when forecasting stock market returns with technical predictors. Our results suggest that technical predictors perform better in periods of low financial uncertainty and should be avoided due to poor forecasting performance in periods of heightened uncertainty. In-sample,...

While most financial regulators agree that short sellers have an important role to play in ensuring an efficiently functioning market, it is interesting to note that many did not hesitate to ban short selling during the recent financial crisis. This apparent contradiction most likely stems from a lack of understanding about what motivates short tra...

In this paper, we present a general model of the joint data generating process underlying economic activity and stock market returns allowing for complex nonlinear feedbacks and interdependencies between the conditional means and conditional volatilities of the variables. We propose statistics that capture the long and short run responses of the sy...

This paper models the trading intensity of the US Treasury bond market, which has a unique expandable limit order book that distinguishes it from other asset markets. The results indicate that the trade duration exhibits significant clustering and threshold effects. Further, the time taken to expand the tradable volume, known as ‘workup’, significa...

The aim of this paper is to model the trading intensity of the US Treasury bond market which has a unique expandable limit order book which distinguishes its structure from other asset markets. An analysis of tick data from the eSpeed database suggests that the US bond market displays a greater degree of clustering in trade durations than is eviden...

This article presents new evidence on the ability of Peacock and Wiseman's displacement hypothesis to explain temporal increases in the ratio of government expenditure to Gross Domestic Product (GDP) in the UK. Using univariate modelling techniques that are robust to structural changes in the underlying data generating process and a data set extend...

This paper examines the relationship between UK equity returns and short-term interest rates using a two regime Markov-Switching EGARCH model. The results suggest one high-return, low variance regime within which the conditional variance of equity returns responds persistently but symmetrically to equity return innovations. In the other, low-mean,...

This paper examines the link between stock prices and trading volume for the Hong Kong stock market. The results suggest that the information content of volume is strongest in trades initiated by short sellers. Based on the analysis of a proprietary database from Dataexplorers, shifts in the demand curve for the Hong Kong securities lending market...

This paper considers the question of how shocks to returns are transmitted across South-East Asian equity markets. Using a reasonably general statistical model our results suggest that a negative-return innovation leads to higher levels of domestic volatility than a positive innovation of equal magnitude. There is strong evidence that returns shock...

We examine the relationship between short term interest rates and UK equity returns using a two regime Markov Switching EGARCH model. We find one high-return, low variance regime in which the conditional variance of equity returns responds persistently but symmetrically to equity return innovations. In the other, low-mean, highvariance, regime ther...

This paper considers the relationship between traded volume and volatility allowing for the impact of short sales. The evidence supports a nonlinear, bidirectional relationship between volume and volatility. Short selling is found to have a significant impact on this relationship, and our results suggest (i) that the Hong Kong market displays great...

This paper employs a new test for level effects and asymmetry in inflation volatility. Higher inflation rates induce greater inflation uncertainty for the U.S., U.K. and Canada. UK and Canadian inflation volatility responds asymmetrically to positive and negative inflation shocks.

Recent research documents the importance of uncertainty in determining macroeconomic outcomes, but little is known about the transmission of uncertainty across such outcomes. This paper examines the response of uncertainty about inflation and output growth to shocks documenting statistically significant size and sign bias and spillover effects. Unc...

Evidence suggests that short-term interest rate volatility peaks with the level of short rates, while equity volatility responds asymmetrically to positive and negative shocks. We present an LM based test that distinguishes between level effects and asymmetry in volatility which is robust to the presence of unidentified nuisance parameters under th...

Empirical evidence documents a level effect in the volatility of short term rates of interest. That is, volatility is positively correlated with the level of the short term interest rate. Using Monte-Carlo simulations this paper examines the performance of the commonly used Engle-Ng (1993) tests which differentiate the effect of good and bad news o...

This study seeks to distinguish between non-stationarity and non-linearity in quarterly US, Japanese and UK inflation. The evidence suggests that inflation in the UK and Japan is well described as a two-regime threshold unit root process. Shocks to inflation are highly persistent in one regime, but have finite lives in the other regime. For the USA...

We study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for postwar U.S. data. Our results suggest that increased growth uncertainty is associated with significantly higher average growth, while higher inflation uncertainty is significantly correlated with lower output growth and lower aver...

Recent empirical work suggests a predictive relationship between stock returns and output growth. We employ quarterly data from a panel of 27 countries to test whether stock returns as useful in predicting growth. Unlike previous research, our approach allows for the possible non-linear effect of recessions on the growth-return relationship. There...

The International Capital Asset Pricing Model measures country risk in terms of the conditional covariance of national returns with the world return. Using impulse responses from a multivariate nonlinear model we provide evidence of time variation and asymmetry in the measure of country risk. and the implied benefit to international diversification...

There is an extensive theoretical and empirical literature discussing the link between short-term interest rate volatility and interest rate levels. We present an LM based test for the presence of a level effect which is robust to the presence of unidentified nuisance parameter under the null of no level effect. We provide extensive Monte-Carlo evi...

Information is provided about sources of macroeconomic and financial time series, archives of working papers and econometric software. Other resources, such as sites dedicated to fields of the discipline, and on-line journals are also highlighted.

This paper proposes an asymmetric model within which consumer credit facilitates both consumption smoothing and rational habit modification. The model is applied to US data using a GMM approach. The evidence suggests that new credit can predict short-run changes in consumption and has assisted consumers to become more forward-looking.

Recent empirical studies suggest that long horizon stock returns are forecastable. While this phenomenon is usually attributed to time varying expected returns, or speculative fads, it may also be due to long memory in the returns series. Long range dependence is investigated using parametric and semiparametric estimators in a sample of nine intern...

There is widespread evidence that the volatility of stock returns displays an asymmetric response to good and bad news. This article considers the impact of asymmetry on time-varying hedges for financial futures. An asymmetric model that allows forecasts of cash and futures return volatility to respond differently to positive and negative return in...

Using UK equity index data, this paper considers the impact of news on time varying measures of beta, the usual measure of undiversifiable risk. The empirical model implies that beta depends on news about the market and news about the sector. The asymmetric response of beta to news about the market is consistent across all sectors considered. Recen...

This paper examines the post Bretton Woods experience of the Australian dollar. In this period Australia moved from a managed to a freely floating exchange rate environment. Parametric and non-parametric techniques are applied to data from a trade weighted index to analyse the time series properties of Australia’s real exchange rate. Even allowing...

This paper investigates comovements between the United States and Australia. Our nonlinear model allows the dynamic response to shocks to differ if countries are in recession. Generalised Impulse Response Functions highlight a significant asymmetric response to positive and negative shocks.

This paper investigates the relationship between output volatility and growth using postwar real GDP data for the United States. We expand on recent research by Beaudry and Koop (1993), documenting the asymmetric effect of recessions on output growth. The results presented in this paper suggest that output volatility is highest when the economy is...

This paper looks at the interaction between public and private consumption in Australia. The results show that there is a long-run equilibrium relation between private and public consumption. However, the nature of this relation changed during the 1980s from one of complementarity to one of substitutability. Copyright 2001 by The Economic Society o...

We fit a two-regime threshold autoregressive model to a trade weighted index of the Australian real exchange rate. We find strong evidence of a threshold in the real exchange rate, with the data being classified into two regimes. The timing of the first regime is consistent with events that would be expected to have led to pressure on the Australia...

We study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for postwar U.S. data in a multivariate asymmetric GARCH-M model. Our statistical model differs from other work in that we allow the conditional covariance of inflation and growth to be both nondiagonal and asymmetric. We show that the...

We fit a two-regime threshold autoregressive model to a trade weighted index of the Australian real exchange rate. We find strong evidence of a threshold in the real exchange rate, with the data being classified into two regimes. The timing of the first regime is consistent with events that would be expected to have led to pressure on the Australia...

This paper models the transmission of shocks between the US, Japanese and Australian equity markets. Tests for the existence of linear and non-linear transmission of volatility across the markets are performed using parametric and non-parametric techniques. In particular the size and sign of return innovations are important factors in determining t...

This paper investigates the relationship between output volatility and growth using postwar real GDP data for the United States. We expand on recent research by Beaudry and Koop ( 1993), documenting the asymmetric effect of recessions on output growth. The results presented in this paper suggest that output volatility is highest when the economy is...

This paper considers the extent to which fluctuations in Australian economic growth are affected by domestic and overseas economic performance. We investigate the performance of a range of nonlinear models versus linear models, comparing the models using Bayes factors and posterior odds ratios. The posterior odds ratios favour nonlinear specificati...

The usual measure of the undiversifiable risk of a portfolio is its beta. Recent research has allowed beta estimates to vary over time, often based on symmetric multivariate GARCH models. There is, however, widespread evidence in the literature that the volatilities of asset returns, in particular those from stock markets, show evidence of an asymm...

This paper presents new evidence on the ability of Peacock and Wiseman's displacement hypothesis to explain temporal increases in the ratio of government expenditure to GDP in the United Kingdom. Using univariate modelling techniques that are robust to structural changes in the underlying data generating process and a data set extending back to 183...

Recent studies suggest that the term premia within the US Term Structure of Interest Rates may be adequately characterized as univariate GARCH(1, 1)-M processes, with highly persistent or even potentially explosive conditional variances. Tzavalis and Wickens (Economics Letters, 49, 1995) using data over the period 1970-1986 argue that such findings...

This paper presents an empirical investigation into factors underlying the real U.S.-Australian dollar exchange rate. We find that the random walk model of the real exchange rate can be improved by various GARCH specifications. In particular, we find that the estimated risk premium from a GARCH-M model is not robust to model specification. When the...

This paper examines the relationship between firm size and equity volatility for two portfolios of Australian equities. Univariate and Multivariate GARCH models are used to demonstrate that conditional variance is related to firm size. There is strong evidence to suggest that the variance-covariance matrix of returns is time varying and asymmetric....

This paper looks at the interaction between public and private consumption in Australia. The results show that there is substitution between private and public consumption in the long-run and that in the short-run, changes to government consumption secures a retourn to equilibrium following a shock.

There is much evidence in the literature that the volatility of asset returns, in particular those from stock markets, show evidence of an asymmetric response to good and bad news. This paper considers the impact of news on time varying hedges for financial futures. The models are compared with traditional time-invariant hedging models, and those g...

This paper proposes an asymmetric model within which consumer credit facilitates both consumption smoothing and rational habit modification. The model provides a better description of aggregate time series consumption data than competeting models. In particular, the model can account for the various aggregate consumption anomalies that have led to...

Research by Ghali (1999) tested for the existence of causality between wages and prices in United States' aggregate data using a multivariate cointegration framework. We show that Ghali's model is misspecified and that the correct specification leads to a different interpretation of the long-run dynamic relation between wages and prices.

This paper provides an introduction to alternative models of uncertain commodity prices. A model of commodity price movements is the engine around which any valuation methodology for commodity production projects is built, whether discounted cash flow (DCF) models or the recently developed modern asset pricing (MAP) methods. The accuracy of the val...

Recent studies suggest that a negative shock to stock prices will generate more volatility than a positive shock of equal magnitude. This paper uses daily data from the Hong Kong Stock Exchange to illustrate the nature of stock market volatility. Regression-based tests for integration in variance are applied, providing contrasting results to the us...

Non-stationarity of the real exchange rate is inconsistent with purchasing power parity as a long run equilibrium. This paper applies parametric and non-parametric techniques to data from a trade weighted index to analyse the time series properties of Australia's real exchange rate. In contrast to recent work by Olekalns amd Wilkins (1998) we concl...

A two regime threshold autogressive model is fitted to a trade weighted index of the Australian real exchange rate in order to identify episodes of exchange rate crisis. We find strong evidence of a threshold in the growth rate of the real exchange reate, with the data being classified into two regimes. The first regime is consistent with an exchan...

Presents results of an investigation of the inflation-hedging characteristics of UK property. Evaluates the various methods of decomposing inflation into its “expected” and “unexpected” components, using new time series data on inflation expectations produced by a questionnaire survey of informed market participants. Utilizes the power and suitabil...

This paper examines inflation in Hong Kong. Unit root tests suggest that the inflation series is non-stationary. However, the unconditional distribution of inflation appears to change culminating in the current deflation. We employ a two-regime Markov-Switching model to decompose price dynamics into a sequence of stochastic segmented time trends. T...

This paper investigates the determinants and information content of short selling in the Hong Kong equity market. Using daily data on the volume of short selling in individual stocks, we find that dividend payments, company fundamentals, risk, option trading, the interest rate spread and past returns and short selling are all significant determinan...

The aim of this paper is to model the trading intensity of the US Treasury bond market, which has a unique expandable limit order book, distinguishing it from other asset markets. An analysis of tick data from the eSpeed database suggests that the US bond market displays a greater degree of clustering in trade durations than is evident in other ass...

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