Peijie Wang

Testing for efficiency and rationality in foreign exchange markets—a review of the literature and research on foreign exchange market efficiency and rationality with comments

Abstract This paper specifies two VAR models for testing efficiency and expectations in foreign exchange markets. The sufficient conditions for efficiency and rational expectations, by imposing restrictions on the VAR parameters, are derived. Based on these models, issues on testing efficiency and rationality are discussed with reference to previous empirical studies in the area.

Stock return volatility and trading volume: evidence from the chinese stock market

This study investigates the dynamic relationship between stock return volatility and trading volume for individual stocks listed on the Chinese stock market as well as market portfolios of these stocks. We found that the inclusion of trading volume, which is used as a proxy of information arrival, in the GARCH specification reduces the persistence of the conditional variance dramatically, and the volume effect is positive and statistically significant in all the cases for individual stocks. Consistent with our analysis of the institutional and ownership structure of listed Chinese companies, trading volume is found to play a role of proxies of information arrivals for the two B share portfolios, but not for the two A share portfolios. Our conclusion is that the information-based effect helps in explaining the GARCH effect to a large extent. Nevertheless, GARCH does not completely vanish as a result of this inclusion.

Market Efficiency and Rationality in Property Investment

This article applies the present-value model to investigate property market efficiency in the United Kingdom. The existence of “rational bubbles” in the U.K. property market is ruled out at conventional statistical significance levels, though the U.K. property market appears not efficient. In addition, there are variations among the office, retail, and industrial property markets. The rejection of the present-value model implies a price discovery mechanism may exist for property investment.

Equilibrium adjustment, basis risk and risk transmission in spot and forward foreign exchange markets

This study investigates the risk transmission between the spot and forward foreign exchange markets. In particular, the effect of innovation basis and signs of shocks in both markets are assessed. The market is less predictable when the spot and forward markets have experienced shocks of opposite signs. The spot market and the forward market are less predictable when both the spot and forward markets have experienced higher uncertainty in the previous periods, but the forward market is influenced more by the uncertainty of its own.

Errors in Variables, Links between Variables and Recovery of Volatility Information in Appraisal-Based Real Estate Return Indexes

The present article proposes a multivariate approach to unsmoothing appraisal-based real estate return indexes to recover the true market volatility information in real estate returns. It scrutinizes the role played by errors in variables, in conjunction with an analysis of other economic activities relevant to real estate returns, to exploit the functional relationship and the mechanism of interactions between real estate returns and these economic activities. Appraisal smoothing can therefore be detected and corrected properly and efficiently, without presuming a weakly efficient real estate market. The approach is then applied to U.K. real estate indexes as empirical examples. The results suggest a reasonable volatility in U.K. real estate investment that is close to reality. It is found that the volatility of the true market return on real estate is 1.5404-1.9282 times that of the return on the appraisal-based indexes, in contrast to figures of 2.4862-5.8720 produced by the fully unsmoothing procedure. Copyright 2006 American Real Estate and Urban Economics Association

Unsmoothing property returns with the implied cointegration relationship

The paper proposes a multivariate approach to unsmoothing the valuation‐based property return indices, utilising information embedded in other variables implied by their underlying economic relationship and cointegration relationship. The approach is then applied to the UK property return indices, and smoothing in the indices is detected and corrected.

The impossibility of meaningful efficient market parameters in testing for the spot-forward relationship in foreign exchange markets

Abstract This study demonstrates that it does not matter whether the estimated parameters have the correct or wrong signs and sizes—the outcome is empirically the same. Moreover, the commonly used hypothesis of testing for market efficiency and rationality is helpless, under the real world circumstances of exchange rate data. It is impossible to use this hypothesis to judge market efficiency.

How do UK regional commercial rents move

An investigation of UK rent movements and adjustment mechanisms shows London as unique in contrast with other regions in the country and distinguishes retail from office and industrial property markets. Two kinds of Granger causality of long run equilibrium and short term dynamics have been scrutinized to establish the evidence for our statement.

Asymmetries in stock markets

This paper analyzes three major asymmetries in stock markets, namely, asymmetry in return reversals, asymmetry in return persistency and asymmetry in return volatilities. It argues for a case of return persistency as stock returns do not always reverse, in theory and in practice. Patterns in return-volatility asymmetries are conjectured and investigated jointly, under different stock market conditions. Results from modeling the worlds major stock return indexes render support to the propositions of the paper. Return reversal asymmetry is illusionary arising from ambiguous parameter estimations and deluding interpretations of parameter signs. Asymmetry in return persistency, still weak though, is more prevalent.

Estimating daily seasonals in financial time series: The use of high-pass spectral filters

Abstract It is demonstrated that combining time domain and frequency domain analyses results in a considerable improvement in modelling seasonal patterns in daily exchange rate changes. A high-pass filter is used, followed by the usual time domain analysis with a GARCH model, to estimate day-of-the-week effects in the spot return on U.S. dollars relative to British pounds and the results are seen to compare favorably with those from a pure time domain approach.