Leonard Chong, Michael Drew and Madhu Veeraraghavan
This study examines the relationship between Australia's stock market and the five largest international markets for the period 1991 through 2001. Preliminary findings, using…
Abstract
This study examines the relationship between Australia's stock market and the five largest international markets for the period 1991 through 2001. Preliminary findings, using correlation statistics, indicated potential benefits to international diversification for the Australian investor. Further analysis, conducted in the VAR framework using the Johansen cointegration method, found that the Australian market has short and long run linkages with the United States, while tests with other markets found little evidence of interdependence. Moreover, only the US market was found to Granger‐cause the Australian market.
Michael E. Drew, Mirela Malin, Tony Naughton and Madhu Veeraraghavan
Malkiel and Xu state that idiosyncratic volatility is highly correlated with size and that it plays a powerful role in explaining expected returns. The purpose of this paper is to…
Abstract
Purpose
Malkiel and Xu state that idiosyncratic volatility is highly correlated with size and that it plays a powerful role in explaining expected returns. The purpose of this paper is to ask whether idiosyncratic volatility is useful in explaining the variation in expected returns; and whether the findings can be explained by the turn of the year effect.
Design/methodology/design
Monthly stock returns and market values of all listed firms in Germany and UK covering the period 1991‐2001 from Datastream are used as the basis of the evaluation.
Findings
The paper finds that the three‐factor model provides a better description of expected returns than the Capital Asset Pricing Model (CAPM). That is, it is found that firm size and idiosyncratic volatility are related to security returns. In addition, it is noted that the findings are robust throughout the sample period
Originality/value
The paper shows that the CAPM beta alone is not sufficient to explain the variation in stock returns.
Details
Keywords
Michael E. Drew, Madhu Veeraraghavan and Min Ye
The purpose of this paper is to investigate the profitability of momentum investment strategy and the predictive power of trading volume for equities listed in the Australian…
Abstract
Purpose
The purpose of this paper is to investigate the profitability of momentum investment strategy and the predictive power of trading volume for equities listed in the Australian Stock Exchange.
Design/methodology/approach
Following the Lee and Swaminathan's approach, portfolios on past returns and past trading volume is constructed. In this approach, all stocks are ranked independently on the basis of past returns and past trading volume. The stocks are then assigned to one of five portfolios based on past returns and one of three portfolios based on trading volume over the same period.
Findings
A strong momentum effect for the Australian market during the period 1988 through 2002 is observed. Further, momentum plays an important role in providing information about stocks. Past trading volume appears to predict both the magnitude and persistence of price momentum.
Research limitations/implications
Substantial momentum observed in monthly stock returns has investment implications. Abnormal returns vary from 0.3 to 7 per cent per month in the intermediate horizon.
Originality/value
This study provides an out of sample evidence by examining the relationship between “trading volume” (measured by the turnover ratio) and “momentum” strategies in an Australian setting.