Mark J. Perry

The effects of real and nominal uncertainty on inflation and output growth: some garch-m evidence

In this paper we use GARCH-M methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the United States from 1948 to 1996. We find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate. We also find no support for the idea that more risky output growth is associated with a higher average real growth rate. Our key result is that in a variety of models and sample periods, inflation uncertainty significantly lowers real output growth. Copyright

On inflation and inflation uncertainty in the G7 countries

Abstract The relationship between inflation and inflation uncertainty is investigated in the G7 countries from 1948 to 1993. GARCH models are used to generate a measure of inflation uncertainty and then Granger methods are employed to test the causality between average inflation and inflation uncertainty. In all G7 countries, inflation significantly raises inflation uncertainty as predicted by Friedman and Ball. Weaker evidence is found that inflation uncertainty Granger-causes inflation. In three countries (US, UK and Germany) increased inflation uncertainty lowers inflation while in two countries (Japan and France) increased inflation uncertainty raises inflation.

The Reversal of the Monday Effect: New Evidence from US Equity Markets

This article re-examines the Monday effect in the US stock market from 1964-1999 using daily returns from three large-cap indexes and two small-cap indexes. In the period before 1987, Monday returns are significantly negative in all five US stock indexes, confirming previous empirical findings. In the post-1987 period, we uncover a significant reversal of the Monday effect in the large-cap indexes (NYSE, S&38;P500 and DJCOMP), since Monday returns are significantly positive. Furthermore, significant differences in the persistence and reversal of the Monday effect are found between large-cap and small-cap stock indexes. Copyright Blackwell Publishers Ltd 2001.

Inflation, inflation uncertainty, and relative price dispersion: Evidence from bivariate GARCH-M models

Abstract One potential real effect of inflation is its influence on the dispersion of relative prices in the economy. Menu cost models generally imply that higher trend inflation will increase price dispersion. In contrast, signal extraction models predict that increased inflation uncertainty will raise relative price dispersion. Existing empirical studies do not distinguish between these separate hypotheses. We constuct a bivariate GARCH-M model of inflation and relative price dispersion to test these differing explanations in a single model and find that inflation uncertainty dominates trend inflation as a predictor of relative price dispersion.

Anomalies in US equity markets: a re-examination of the January effect

This study investigates the January effect in US equity markets using three market indexes from 1964–1998: Dow Jones Composite, NYSE Composite and the SP500. Chow tests for structural stability indicate that the estimated parameters in an equation testing for monthly seasonal effects in the stock market are not stable over time. In the 1964–1987 sample period it is found that January returns are positive and significant in all three stock market indexes. After 1987, January returns are positive but not statistically different from zero. The results therefore provide no statistical support for the January effect in US equity markets in the post-1987 market crash period.

A test of US equity market reaction to surprises in an era of high trading volume

This paper examines the reactions of investors to the arrival of unexpected information in five major US equity markets from 1990 to 2001, a period characterized by high daily trading volume and the increasing presence of noise-traders. Market surprises are identified using a strictly quantitative approach, cumulative abnormal returns are calculated and tracked for a period of 30 days after each favourable or unfavourable event. The empirical results provide evidence that investors’ reactions during the sample period are consistent with the prediction of the Uncertain Information Hypothesis in all markets except NASDAQ. One major implication of these results for investors is that implementing a contrarian strategy of buying current losers and selling current winners will not generate superior returns.

The relative influence of the East and the West on Middle Eastern emerging stock markets: an empirical investigation

This article examines the relative influence of the US, UK and Japan on Middle Eastern Emerging Markets (MEEMs). The empirical results, from maximum likelihood regressions, Generalized Autoregressive Conditional Heteroscedasticity (GARCH) models and Vector Autoregression (VAR) estimates, provide some support for a generally mild influence of the US, UK and Japan on the MEEMs, with the greatest influence coming from the US market and the least from Japan. The dynamics of the MEEMs are shown to be dominated primarily by their own price innovations. The findings further indicate that, although national responses to external shocks are generally heterogeneous, there are some similarities in the reactions to US, UK and Japanese market innovations, depending on the level of maturity of the stock markets in the MEEMs.