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Stock market predictability

Author

Listed:
  • Silvio John Camilleri
  • Christopher J. Green

Abstract

Purpose - – The main objective of this study is to obtain new empirical evidence on non-synchronous trading effects through modelling the predictability of market indices. Design/methodology/approach - – The authors test for lead-lag effects between the Indian Nifty and Nifty Junior indices using Pesaran–Timmermann tests and Granger-Causality. Then, a simple test on overnight returns is proposed to infer whether the observed predictability is mainly attributable to non-synchronous trading or some form of inefficiency. Findings - – The evidence suggests that non-synchronous trading is a better explanation for the observed predictability in the Indian Stock Market. Research limitations/implications - – The indication that non-synchronous trading effects become more pronounced in high-frequency data suggests that prior studies using daily data may underestimate the impacts of non-synchronicity. Originality/value - – The originality of the paper rests on various important contributions: overnight returns is looked at to infer whether predictability is more attributable to non-synchronous trading or to some form of inefficiency; the impacts of non-synchronicity are investigated in terms of lead-lag effects rather than serial correlation; and high-frequency data is used which gauges the impacts of non-synchronicity during less active parts of the trading day.

Suggested Citation

  • Silvio John Camilleri & Christopher J. Green, 2014. "Stock market predictability," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 31(4), pages 354-370, September.
    • Handle: RePEc:eme:sefpps:v:31:y:2014:i:4:p:354-370
    DOI: 10.1108/SEF-06-2012-0070
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    Citations

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    Cited by:

    1. Silvio John Camilleri & Ritienne Farrugia, 2018. "The Risk-Adjusted Performance of Alternative Investment Funds and UCITS: A Comparative Analysis," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(7), pages 1-23, July.
    2. Camilleri, Silvio John, 2005. "Can a Stock Index Be Less Efficient Than Underlying Shares? An Analysis Using Malta Stock Exchange Data," MPRA Paper 84574, University Library of Munich, Germany.
    3. Camilleri, Silvio John & Scicluna, Nicolanne & Bai, Ye, 2019. "Do stock markets lead or lag macroeconomic variables? Evidence from select European countries," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 170-186.
    4. Camilleri, Silvio John & Galea, Francelle, 2019. "The Determinants of Securities Trading Activity: Evidence from four European Equity Markets," MPRA Paper 95298, University Library of Munich, Germany.
    5. Camilleri, Silvio John, 2015. "Do call auctions curtail price volatility? Evidence from the National Stock Exchange of India," MPRA Paper 95301, University Library of Munich, Germany.

    More about this item

    Keywords

    Stock markets; National stock exchange of India; Non-synchronous trading; G12; G14;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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