Rafael Santamaria

The Momentum Effect in Latin American Emerging Markets

We find that momentum strategies yield profits in Latin American emerging markets. Both stock type and country play a major role in explaining the momentum effect in these markets, but stock type is much more important. For risk-averse investors, winner portfolios stochastically dominate loser portfolios in these markets, implying that there are no asset-pricing models consistent with risk-averse investors that can rationalize the momentum effect. The results obtained via the bootstrap procedure without replacement also uphold this conclusion.

Forecasting volatility in the Spanish option market

The performance of several alternative forecasts for the Ibex-35 index options market data is compared and a test for market efficiency of the Spanish Option Market with respect to volatility forecasts provided. The forecasts include time series, implied volatilities and composite specifications using both parametric and nonparametric ways. It is found that the choice of the best model depends on the error measurement that depends on the ultimate purpose of the forecasting procedure. Also the results generated from an ex ante arbitrage strategy are not different from zero at conventional significance levels once the transaction costs are taken into account. This result supports the hypothesis of the market efficiency of the Spanish Option Market.

The Random Walk Hypothesis in the Spanish Stock Market: 1980-1992

In this paper we test the random walk hypothesis in the Spanish stock market using disaggregated daily data base spanning the period January 1980 to December 1992. We find that daily returns are strongly correlated and nonlinear dependent. Furthermore, using the variance-ratio test, that is robust to heteroscedasticity, the results suggest that the rejection of the random walk hypothesis cannot be attributed completely to the effects of time varying volatilities. In this sense, the price changes can be potentially predictable over, at least, short time spans. Copyright Blackwell Publishers Ltd 1997.

Bad news and Dow Jones make the Spanish stocks go round

This paper is a data-based attempt to analyse what kind of information basically affects close-to-open returns, open-to-close returns, volatility and volume in actively traded individual securities on the Spanish stock market. Specifically, we are interested in detecting how these variables react to specific pieces of news considered as exogenous information. However, as volume itself could be interpreted as a proxy of the information flow, we first apply the linear and nonlinear Granger causality tests from volume to return and to volatility. We do not find evidence supporting this latter hypothesis. Furthermore, we only find significant evidence of linear causality from volume to volatility. The other major finding is that both bad news and the Dow Jones play a significant informational role in explaining price changes and volatility. As a consequence of these findings, we also test the residual role of volume as a proxy for noise/liquidity trading after filtering for news, although we do not find evidence in favour of this argument.

Testing memory patterns in the Spanish stock market

Different tests are used to study whether the Spanish stock market return time series display memory patterns. The hypothesis that the stock market returns are independently and identically distributed is not corroborated, as it is shown through the Brock-Dechert-Scheinkman (BDS) statistic and the Hurst-Mandelbrot R/S analysis. The alternative of long-range memory as an explanation of the IID departures is explored. The evidence of long-range memory is not convincing using the modified rescaled range (MRR) test and the Geweke-Porter-Hudak (GPH) test, despite the sensitivity of the results to a parameter choice. Nevertheless, the results do suggest the existence of strong memory processes, though such dependence is not exhibited over extremely long time spans.

The momentum effect: omitted risk factors or investor behaviour? Evidence from the Spanish stock market

In this paper we use generally applicable non-parametric methods in an attempt to sort out the possible sources of momentum in stock markets (behavioural theories or omitted risk factors). Specifically, we present the results of bootstrap analysis and stochastic dominance tests for the Spanish stock market. Our results from the bootstrap analysis are found to depend on the resampling method used (with or without replacement). Nevertheless, the various stochastic dominance techniques applied lead us to the same conclusion, namely that the winner portfolio stochastically dominates the loser portfolio, which is not consistent with the general asset-pricing models developed for risk-averse investors. This promotes interest in analysing theories that relax the unbounded rationality assumptions that support many of the classical asset-pricing models.

Information Spillovers between Derivative Markets with Differences in Transaction Costs and Liquidity

In line with the transactions cost theory, this article shows that the futures market with its higher liquidity and lower transactions costs, leads the options market in the price discovery process. Liquidity and transaction costs are also shown to play a key role in market sensitivity to information, since the futures market s response to shocks is quicker, which means that it receives higher volatility spillovers than does the options market.

New Economy Firms and Momentum

This article evaluates how “new economy” stocks may contribute to the momentum effect. Our results reveal that, by virtue of their distinct characteristics, these assets are more likely to generate momentum returns, and thus to increase the concentration of momentum traders. The combination of these two factors makes the momentum effect stronger in the new economy than in other industries.

Does Informed Trading Occur in the Options Market? Some Revealing Clues

This paper analyses the relationship between proxy variables for informed trading in the options market and a set of exogenous news variables. The aim was to test directly for the presence or absence of informed trading in the options market and for the possible impact of this trading on underlying asset prices. Our findings reveal that potential informed trading in options markets is channelled basically through out-of-the-money options, except for volatility trading which mainly involves at-the-money options because of their liquidity. In both cases, we have found evidence in favour of investors’ strategic fragmentation of transactions into intermediate size trades (stealth trading). Finally, it is shown that lack of consensus among agents also generates increased trading, particularly in out-of-the-money and at-the-money options.

The Stock Market Crisis and Momentum: Some Evidence for the Spanish Stock Market During the 1990s

In this article, we test the momentum effect in the Spanish stock market during the 1990s. Though there is evidence of momentum, it disappears after the 1997 crisis. While momentum profits are associated with both size and turnover effects, neither of these factors is a determinant in explaining the momentum effect. The turn of the year effect also lacks sufficient explanatory power to account either for the appearance or disappearance of this effect. An important role is played in this puzzle by the winner portfolio, particularly when it is constructed from small, high turnover stocks. Analysis of the characteristics and evolution of this portfolio may, therefore, help to explain the momentum effect.