José Luis Miralles-Quirós

Intraday linkages between the Spanish and the US stock markets: evidence of an overreaction effect

This paper focuses on short-term information transmission between the US stock market, properly the DOW index, and the main Spanish stock index, IBEX-35, in its early and final hours. We follow the approaches of Lin, Engle and Ito (1994), Susmel and Engle (1994) and Baur and Jung (2005) who use a GARCH model to analyze the influence of the previous daytime and overnight returns and volatility of the DOW upon the overnight returns and daytime returns of the IBEX from Open-to-3:30 and from 3:30-to-Close. The results suggest that the Spanish stock market usually has a low price movement till Wall Street opens. Additionally, they indicate that the Spanish market reacts quickly to the news, basically in the first four minutes following the opening of the US market. Furthermore, we find the existence of an overreaction effect during the two hours before the closing of the Spanish market.

Improving the CARR model using extreme range estimators

The aim of this article is to analyse the forecasting ability of the conditional autoregressive range (CARR) model proposed by Chou (2005) using the S&P 500. We extend the data sample, allowing for the analysis of different stock market circumstances and propose the use of various range estimators in order to analyse their forecasting performance. Additionally, we decide to divide the full sample into four sub-samples with the aim of analysing the forecasting ability of the different range estimators in various periods. Our results show that the original CARR model can be improved depending on three factors: the trend, the level of volatility in the analysis period and the error estimator that is used to analyse the forecasting ability of each model. The Parkinson model is better for upward trends and volatilities which are higher and lower than the mean while the CARR model is better for downward trends and mean volatilities.

Intraday patterns and trading strategies in the Spanish stock market

Different rating and investment companies have recently pointed out Spain’s brightening growth outlook, which has energized the Spanish stock market. By anticipating greater interest in the behaviour of the Spanish stock market, we show that the best trading strategy is that in which the investor enters long or short after the opening of the New York Stock Exchange (NYSE) till the end of the trading day at 17:30. This strategy should be complemented with that of entering long or short from the opening of the trading day till the closing price before the opening of the NYSE in no-coincidence phases.

Intraday Stock Market Behavior After Shocks: The Importance of Bull and Bear Markets in Spain

The stock market behavior after different shocks has been analyzed from different points of view, but none has considered, as in this work, the possibility of combining different procedures, intraday returns over six days, and different phases of the markets in the Spanish stock market. The inconclusive results that we find following the previous empirical methodologies make way to interesting results when bull and bear markets are considered. We find that positive shocks are much more important than negative shocks, especially in downward trends where we find a significant overreaction effect that can be associated with the pessimism prevailing in a bear market after the “dead cat bounce” which represents those positive shocks.

Growth, profits and foreign ownership in the Brazilian banking industry

ABSTRACT The deregulation of the financial markets and their progressive globalization has favoured the internationalization of banking. Moreover, during the international financial crisis, the presence of foreign banks has increased in countries experiencing faster economic growth, such as Brazil. In this context, the aim of this study is to analyze the growth and profitability of the financial institutions in Brazil, taking into account the possible non-linearity of the relationship, the differences between Brazilian and foreign institutions and the effect of the crisis. Our results indicate that the entry of foreign institutions has a direct effect on the Brazilian banking industry.

Estimação do Efeito Dia da Semana e Estratégias de Investimento no Mercado de Capitais Brasileiro

OBJETIVO Analisar a existencia do efeito dia da semana num primeiro subperiodo de analise para assim poder identificar estrategias de investimento a aplicar num segundo subperiodo. METODOLOGIA Sao analisados dois modelos: o modelo de rentabilidades medias ou classico e o “modelo de rentabilidades puras” sobre 365 empresas representativas de 38 segmentos economicos num periodo de 20 anos compreendido entre 1994 e 2014 com dados obtidos da base de dados Thomson Financial Datastream. Os dados sao divididos em duas subamostras. A primeira e utilizada para procurar padroes de retorno diarios e a segunda para testar estrategias de transacoes baseadas nos referidos padroes. RESULTADOS E CONCLUSOES Os resultados iniciais confirmam a existencia de padroes de sazonalidade com rentabilidades negativas nas segundas-feiras e positivas nas sextas-feiras. Tambem mostram que a melhor estrategia de investimento e aquela que consiste em entrar no mercado nas sextas-feiras e sair nos restantes dias da semana ja que apresenta melhores dados em termos de rentabilidades, riscos e indices de Sharpe quando comparada com as outras alternativas de investimento. Foram atingidos os dois objetivos do trabalho, em primeiro lugar, procurar a existencia do efeito dia da semana no mercado brasileiro e, por outro lado, identificar estrategias de investimento a partir do referido efeito que pudessem resultar na obtencao de retornos superiores aqueles que poderiamos obter se recorressemos a uma estrategia de negociacao de comprar e manter. Estes resultados foram avaliados com a aplicacao de testes robustos que garantiram sua validade. IMPLICACOES PRATICAS As principais implicacoes praticas deste estudo sao a demonstracao da existencia de padroes de sazonalidade no mercado brasileiro e a posibilidade de tirar proveito dos efeitos dia da semana quer para investidores mais avessos ao risco quer para aqueles menos avessos ao risco com diferentes estrategias de investimentos para cada um deles. Isto e, investir so nas sextas-feiras para os mais avessos ao risco ou investir so nas segundas-feiras para os menos avessos ao risco. PALAVRAS-CHAVE Sazonalidade diaria, Modelos GARCH, Indice de Sharpe.   ESTIMATION OF THE DAY-OF-THE-WEEK EFFECT AND INVESTMENT STRATEGIES IN THE BRAZILIAN CAPITAL MARKET OBJECTIVE To analyze whether there exists evidence of daily seasonality in an in-sample period in order to identify trading rules that can achieve gains out-of-sample. METHODOLOGY We analyze two models: the average returns model or classic and the “pure returns” model on 365 firms, which represent 38 economic sectors over a 20 years period (1994-2014) with data obtained from the Thomson Financial Datastream database. Data is divided into two subsamples. The first is used to analyze the existence of daily seasonality and the second to test different investment strategies based on the previous daily seasonalities. RESULTS AND CONCLUSIONS The initial results confirm the existence of daily seasonalities with negative returns on Mondays and positive returns on Fridays. They also show that the best investment strategy is that which consists of buying on Fridays and selling during the rest of the week because it reveals a better performance on returns, risks and Sharpe ratios when compared with other investment alternatives. Both objectives of this work were reached, firstly, we prove the existence of a day-of-the-week effect in the Brazilian stock market and, secondly, we identify investment strategies which lead us to obtain a better performance than we could obtain by employing a buy and hold strategy. These results were confirmed with different robustness tests. PRACTICAL IMPLICATIONS The main practical implications of this study are that we prove the existence of seasonalities in the Brazilian stock market and that investors can obtain profits from investing when they take into consideration the day-of-the week effect, even those who are more averse to risk. Therefore, we suggest that investors with more risk aversion invest on Fridays and those with less risk aversion invest on Mondays. KEYWORDS Day of the week effect, GARCH models, Sharpe ratio.

The Role of Liquidity in Asset Pricing: The Special Case of the Portuguese Stock Market

Purpose – The aim of this paper is to examine the role of liquidity in asset pricing in a tiny market, such as the Portuguese. The unique setting of the Lisbon Stock Exchange with regards to changes in classification from an emerging to a developed stock market, allows an original answer to whether changes in the development of the market affect the role of liquidity in asset pricing. Design/methodology/approach – The authors propose and compare two alternative implications of liquidity in asset pricing: as a desirable characteristic of stocks and as a source of systematic risk. In contrast to prior research for major stock markets, they use the proportion of zero returns which is an appropriated measure of liquidity in tiny markets and propose the separated effects of illiquidity in a capital asset pricing model framework over the whole sample period as well as in two sub-samples, depending on the change in classification of the Portuguese market, from an emerging to a developed one. Findings – The overall results of the study show that individual illiquidity affects Portuguese stock returns. However, in contrast to previous evidence from other markets, they show that the most traded stocks (hence the most liquid stocks) exhibit larger returns. In addition, they show that the illiquidity effects on stock returns were higher and more significant in the period from January 1988 to November 1997, during which the Portuguese stock market was still an emerging market. Research limitations/implications – These findings are relevant for investors when they make their investment decisions and for market regulators because they reflect the need of improving the competitiveness of the Portuguese stock market. Additionally, these findings are a challenge for academics because they exhibit the need for providing alternative theories for tiny markets such as the Portuguese one. Practical implications – The results have important implications for individual and institutional investors who can take into account the peculiar effect of liquidity in stock returns to make proper investment decision. Originality/value – The Portuguese market provides a natural experimental area to analyse the role of liquidity in asset pricing, because it is a tiny market and during the period studied it changed from an emerging to a developed stock market. Moreover, the authors have to highlight that previous evidence almost exclusively focuses on the US and major European stock markets, whereas studies for the Portuguese one are scarce. In this context, the study provides an alternativemethodological approach with results that differ from those theoretically expected. Thus, these findings are a challenge for academics and open a theoretical and a practical debate.