Andrew Urquhart

How predictable are precious metal returns

This paper provides strong evidence of time-varying return predictability of three precious metals from January 1987 to September 2014. We use three variations of the variance ratio test, the nonlinear Brock, Dechert and Schieinkman test as well as the Hurst exponent to evaluate the time-varying return predictability of precious metals to reduce the risk of spurious results. Our full sample results report mixed findings where some tests indicate significant predictability while some suggest no predictability. However through a time-varying procedure, we show that each precious metal market goes through periods of significant predictability as well as periods of unpredictability. Therefore this finding suggests that return predictability does vary over time and is not a static, all-or-nothing condition and therefore is consistent with the adaptive market hypothesis. We also show that platinum is the most predictable of the three precious metals and silver the least predictable, which may be of great to investors who include precious metals in their investment portfolios.

Localization, Shedding, Regulation and Function of Aminopeptidase N/CD13 on Fibroblast like Synoviocytes.

Aminopeptidase N/CD13 is highly expressed by fibroblast like synoviocytes (FLS) and may play a role in rheumatoid arthritis (RA). CD13 was previously detected in human synovial fluid where it was significantly increased in RA compared to osteoarthritis. In this study we found that CD13 in biological fluids (plasma, synovial fluid, FLS culture supernatant) is present as both a soluble molecule and on extracellular vesicles, including exosomes, as assessed by differential ultracentrifugation and density gradient separation. Having determined CD13 could be released as a soluble molecule from FLS, we examined potential mechanisms by which CD13 might be shed from the FLS membrane. The use of protease inhibitors revealed that CD13 is cleaved from the FLS surface by metalloproteinases. siRNA treatment of FLS revealed one of those proteases to be MMP14. We determined that pro-inflammatory cytokines (TNFα, IFNγ, IL-17) upregulated CD13 mRNA in FLS, which may contribute to the increased CD13 in RA synovium and synovial fluid. Inhibition of CD13 function by either inhibitors of enzymatic activity or anti-CD13 antibodies resulted in decreased growth and diminished migration of FLS. This suggests that CD13 may be involved in the pathogenic hyperplasia of RA FLS. This data expands potential roles for CD13 in the pathogenesis of RA.

Does Technical Analysis Beat the Market? – Evidence from High Frequency Trading in Gold and Silver

Previous research has identified that investors place more emphasis on technical analysis than fundamental analysis, however the research has largely been confined to daily data and stock market indices. This paper studies whether intraday technical trading rules produce significant payoffs in the gold and silver market using three popular moving average rules. We find that using the standard parameters previously used in the literature, technical trading rules offer are not profitable. However after utilising a universe of parameters, we find a number of parameter combinations offer significant profits in the gold market, but there remains no significant payoff in the silver market. Our results show that parameters that use longer histories are more successful than the traditional parameters chosen in the literature. Intraday technical trading rules can be profitable in the gold market but offer no significant profit in the silver market.

The Euro and European Stock Market Efficiency

This paper examines the impact of the introduction of the Euro currency on the market efficiency of ten of the most developed European stock markets during the period 1988-2012. We use an autocorrelation test, a runs test, various formulations of the variance ratio test and the nonlinear BDS test, which are performed on daily data for the full sample period, as well as two subsets dictated by the introduction of the Euro currency. The full sample results are mixed, with the Netherlands accepting the EMH while Ireland completely rejects the EMH, with the other markets providing mixed evidence for market efficiency. The subsample period results show that while some markets became more efficient after the introduction of the Euro currency (Spain and Finland) and some markets became more inefficient (France), some were unaffected by the introduction of the Euro (the Netherlands and Italy). Overall our results show that the impact of the Euro currency is mixed, whether the market has or has not adopted the single currency.

Stylized facts of intraday precious metals

This paper examines the stylized facts, correlation and interaction between volatility and returns at the 5-minute frequency for gold, silver, platinum and palladium from May 2000 to April 2015. We study the full sample period, as well as three subsamples to determine how high-frequency data of precious metals have developed over time. We find that over the full sample, the number of trades has increased substantially over time for each precious metal, while the bid-ask spread has narrowed over time, indicating an increase in liquidity and price efficiency. We also find strong evidence of periodicity in returns, volatility, volume and bid-ask spread. Returns and volume both experience strong intraday periodicity linked to the opening and closing of major markets around the world while the bid-ask spread is at its lowest when European markets are open. We also show a bilateral Granger causality between returns and volatility of each precious metal, which holds for the vast majority subsamples.

Ultra-high-frequency lead-lag relationship and information arrival

To our knowledge, this paper is the first study on the effect of information arrival on the lead–lag relationship amongst related spot instruments. Based on a large data-set of ultra-high-frequency transaction prices time-stamped to the millisecond of the S&P500 index and its two most liquid tracking ETFs, we find that their lead–lag relationship is affected by the rate of information arrival whose proxy is the unexpected trading volume of these instruments. Specifically, when information arrives, the leadership of the leading instrument may strengthen or weaken depending on whether the leading or lagging instrument responds to that information. An increase in the unexpected volume of the leader strengthens its leadership whereas an increase in the unexpected volume of the lagger weakens this leadership. In addition to the strength of leadership, an increase in the unexpected volume in response to information arrival may also have opposite effects on the lead–lag correlation coefficient depending on whether that volume increase belongs to the leader or the lagger. Finally, we find that sophisticated investors have a more significant effect on the lead–lag relationship than non-sophisticated ones.

Investigating risk contagion initiated by endogenous liquidity shocks: evidence from the US and eurozone interbank markets

ABSTRACT This paper investigates liquidity spillovers between the US and European interbank markets during turbulent and tranquil periods. We show that an endogenous model with time-varying transition probabilities is effective in describing the propagation of liquidity shocks within the interbank market, while predicting liquidity crashes characterised by changed dynamics. We show that liquidity shocks, originating from movements of the spread between the Asset Backed Commercial Paper and T-bill, drive regime changes in the euro fixed-float OIS swap rate. Our results support the idea of endogenous contagion from the US money market to the eurozone money market during the global financial crisis.

Price Clustering in Bitcoin

Investor and media attention in Bitcoin has increased substantially in recently years, reflected by the incredible surge in news articles and considerable rise in the price of Bitcoin. Given the increased attention, there little is known about the behaviour of Bitcoin prices and therefore we add to the literature by studying price clustering. We find significant evidence of clustering at round numbers, with over 10% of prices ending with 00 decimals compared to other variations but there is no significant pattern of returns after the round number. We also support the negotiation hypothesis of Harris (1991) by showing that price and volume have a significant positive relationship with price clustering at whole numbers.

The Intraday Dynamics of Bitcoin

Bitcoin has received much investor attention in recent years, however, there remains a lot of scepticism and lack of understanding of this cryptocurrency. We contribute to the growing literature of Bitcoin by examining the intraday variables of the leading Bitcoin exchange with the highest information share from 1st November 2014 to 31st October 2016 to reveal the intraday stylized facts of Bitcoin and also study the intraday interaction between returns, volume, bid-ask spread and volatility. Employing GMT-stamped tick data aggregated to the 5-mintuely frequency, we find that volume, bid-ask spread and volatility all experience n-shaped patterns throughout the day which suggests that European and North American traders are the main drivers of Bitcoin trading and volatility. It also suggests that volatility and the bid-ask spread are highly related as suggested by Roll (1984), which is probably due to the lack of market makers in Bitcoin markets. We also find that all intraday variables are highly correlated, possess significant lead-lag relationships and there is significant bilateral Granger causality.

Ultra-High-Frequency Pairs Trading in Gold ETFs

Based on a large dataset of gold ETFs, we find arbitrage opportunities in the gold ETF market which can be exploited by high-frequency traders. To our knowledge, this is the first paper to study pairs trading of gold ETFs using tick data. Able to execute their orders with minimal delay and take advantage of potentially short-lived opportunities, high-frequency traders can make an excess return of 2.1% p.a. after including transaction costs. Consistent with Grossman and Stiglitz (1976) and Grossman and Stiglitz (1980), this profitability may be compensation for arbitrage efforts and incentivise arbitrageurs to eliminate mispricing. We also explain why the trade exit rule of full convergence used in previous studies may not be optimal and propose a rule based on partial convergence which outperforms the standard full-convergence rule. Specifically, changing the exit rule from full convergence to partial convergence can increase pairs trading returns to 3.38% p.a. and also enhance the risk-adjusted performance based on different risk adjustment methods. More importantly, the outperformance of partial convergence is consistent in both the whole sample and the sub-samples with the optimal convergence target being around 40%. Therefore, partial convergence enables better exploitation of arbitrage opportunities than full convergence. Finally, the pairs trading returns exceed compensation for risks, which suggests that the gold ETF market may be inefficient at ultra-high frequency.