Douglas Wood

The profitability of daily stock market indices trades based on neural network predictions: case study for the S&P 500, the DAX, the TOPIX and the FTSE in the period 1965–1999

A variety of new and powerful time series tools are available to test for predictive components in data which previously have been regarded as weak form efficient. The key issue is whether these new tools support profitable trading. A method is introduced based on univariate neural networks using untransformed data inputs to provide short-term predictions of the stock market indices returns. The profitability of trading signals generated from the out-of-sample short-term predictions for daily returns of S&P 500, DAX, TOPIX and FTSE stock market indices is evaluated over the period 1965–1999. The results provide strong evidence of high and consistent predictability contrasting the previous finding of weak form efficiency for index series and is notable because two of the series (S&P 500 and DAX) are confirmed as random using conventional tests. The out-of-sample prediction performance of neural networks is evaluated using RMSE, NMSE, MAE and sign and direction change statistics against a benchmark linear autoregressive model. Significant information advantage is confirmed by the Pesaran–Timmermann test. Finally, it is shown that buy and sell signals derived from neural network predictions are significantly different from unconditional one-day mean return and are likely to provide significant net profits for plausible decision rules and transaction cost assumptions.

The Regulation of the United Kingdom Electricity Industry: An Event Study of Price-Capping Measures

The privatization of United Kingdom utilities after 1979 established a regulatory regime based around price capping rather than return capping. This innovation was intended to provide a predictable framework that encouraged efficiency. An event methodology was used to examine stock market reaction to the main regulatory announcements affecting 12 Regional Electric Companies from flotation to 1995. The results indicate that the regulatory announcements were only a minor contributor to the persistent abnormal returns observed. The low connection between regulatory events, efficiency changes and abnormal returns at company level lead to a conclusion that the initial structural and control frameworks dominated the regulatory framework.

An Historical Appraisal of Information Technology in Commercial Banking

The central role of information processing in banking leads to an expectation that banking and finance companies will be strongly affected by technological innovation in general and applications of information and communications technologies (IT) in particular. This research reviews those effects on banking organizations with reference to front-office or external changes (product and service innovation) and back-office or internal changes (operational function) brought about to banking organizations. Following Fincham et al . (1994), Garbade and Silber (1978), Morris (1986) and Quintas (1991), IT-based technological innovations are considered and grouped into four distinct periods: early adoption (1864-1945); specific application (1945- 65); emergence (1965-80); and diffusion (1980-95). The research then discusses the potential impact of more recent innovations (i.e., electronic purses, digital cash and Internet banking). The research provides a historical perspective on the main drivers determining adopt...

The efficiency of accounting service provision

The paper uses a procedure called data envelopment analysis (DEA) to compare internal against external (outsource) efficiency in the delivery of finance function activities. The approach allows a direct comparison between the in‐house efficiency of UK small, medium and large companies in managing their accounting activities both with UK outsource contractors and also against the rather larger and more numerous contractors observed in Italy. The paper finds that, through comparative advantages, outsourcing presents a more efficient solution for the management of very small firm accounting than internal provision. Furthermore, there is evidence that substantial scale benefits continue to be available to outsource contractors, while inefficiency on internal provision is mainly technical. The paper concludes that outsourcing provision is likely to offer worthwhile savings to small firms, allowing them to shed competitive weaknesses and operate at efficient or best practice levels. At the same time, by converting an internal fixed cost, fixed capacity activity into a flexible, variable cost activity, SMEs have the potential to transform a previously unmanageable activity into an efficient or best practice activity that can grow or contract with the business.

The effect of luting media on the fracture resistance of a flame sprayed all-ceramic crown

OBJECTIVES This in vitro study investigated the effect of selected luting media on the fracture resistance of a flame-sprayed all-ceramic crown. METHODS Three groups of 10 human upper premolar teeth were prepared for crowning using a standardised technique. Flame sprayed crowns were fabricated and cemented onto the preparations using zinc phosphate (ZPC), glass polyalkenoate (GPC) or composite luting cement (CLC). During crown seating, a pressure perfusion system simulated pulpal fluid outflow equivalent to 300mm of H2O. Compressive fracture resistance was determined for each group using a Universal Testing Machine with a crosshead speed of 1mm min(-1). A group of unrestored teeth acted as a control. RESULTS The fracture resistance of the groups ranked as follows: ZPC>CLC>>GPC=unrestored teeth. The difference between the fracture resistance of ZPC and CLC groups and the control group was statistically significant. The mode of fracture between the luted crowns and natural crowns was markedly different. CONCLUSIONS When tested in compression, a new, flame-sprayed all-ceramic crown, when luted in place using ZPC, GPC or CLC, could produce strengths comparable to or greater than natural unrestored teeth. The luting agent used significantly affected the recorded fracture loads.

Classifying trend movements in the MSCI U.S.A. capital market index—a comparison of regression, ARIMA and neural network methods

This paper describes our initial results in applying neural networks to forecast the MSCI U.S.A. Capital Market Index. The objective is to test the ability of an non-parametric learning network to provide valuable information to a global portfolio manager, who needs to assess investment opportunities in equity markets in order to shape a one month ahead asset allocation. Primarily, the objective is to test the directional classification properties of the method with secondary objectives of higher magnitude prediction and lower RMS error. The system achieved fairly good results on the directional classification criteria as well as the other criteria mentioned both in absolute terms and in comparison with multiple linear regression and two ARIMA models.

Outsourcing implications on companies’ profitability and liquidity: a sample of UK companies

This article investigates the business performance of a sample of companies announcing outsourcing contracts. Performance effects are investigated by measures including operating profit, earnings margin, return on shareholders’ capital, reduction in employment cost and research and development expenditure prior to and subsequent to the outsourcing announcement. The conclusion is that outsourcing companies’ profitability and liquidity decrease in years in which outsourcing announcements occur, and tend to increase in the subsequent year. Also, it is possible that the short‐term and long‐term financial structure of outsourcing companies is altered.

The information value of failure predictions in credit assessment

Abstract This paper is concerned with the information value of failure prediction in the context of bank lending decisions. It argues that earlier concerns about the methodology and robustness of classificatory models are, given the volume of confirmatory studies, no longer of practical significance. Instead the problem is whether reported classificatory performance provides information of value (new information) in a plausible ex ante decision situation. In interpreting ex post evidence it appears that claimed information value is directly dependent on assumptions about factors which are neither specified nor testable within the conventional ex post experiment. Past claims for information value have used extreme values for these assumptions but it is argued that with plausible alternative assumptions the ex post evidence is also consistent with negative information value.

Strategy, competition and diversification in European and Mexican banking

This article identifies whether top managers in banks’ parent companies are highly involved in the design of strategy and examines how management styles influence (or reflect influences) on diversification decisions within bank markets. Alongside this assessment, the research ranks the main concerns to design strategy in banking within an international setting (including the role of information and telecommunication technologies in the design and implementation of banks’ diversification strategies). Results emerging from triangulating responses suggested that, on balance, top managers in bank markets are predisposed to integrate around purely strategic rather than purely financial targets or than a combination of strategic and financial performance. Management of diversity does not seem to be time invariant with results suggesting that information technology management played a secondary role in the design of bank strategy but at the same time, information technology applications were perceived as an important force to modify competition in bank markets.

Outsourcing implications for accounting practices

Discusses the treatment of outsourcing in company accounts. In particular, it considers the application of several accounting standards that may be relevant to the presentation of outsourcing agreements in the financial statements. The way in which these principles are implemented in the relevant financial statements, with respect to outsourcing between 1991 and 1997, is the main focus of the paper. In practice, accountants, in the majority of the cases, consider outsourcing contracts as immaterial contracts and, generally, they do not include any note of the outsourcing contracts in the financial statements. This implies that accountants (auditors) consider each outsourcing contract as an individual contract without taking into consideration its aggregate effects. Finally, the degree to which FRS 12 raises issues with respect to the outsourcing agreements is considered in this paper and their presentation in accounts is considered.