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Information Spillovers and Size-sorted Portfolios: Structural Evidence from Australia

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Author Info
George Milunovich () (Department of Economics, Macquarie University)

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Abstract

A portfolio of small capitalization stocks formed from securities listed on the Australian Stock Exchange (ASX) fails to adjust to market-wide news instantaneously and displays a significant amount of predictability from lagged returns on large and medium size firms. Despite apparently large excess payoffs generated by filter rules, the lagged adjustments become economically insignificant once transaction costs associated with taking a position in each constituent security are taken into account. I suggest that the observed predictability is largely due to a lack of small cap portfolio derivatives which could facilitate index arbitrage and enhance price discovery in the Australian market.

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File URL: http://www.econ.mq.edu.au/research/2006/10_2006_Milunovich.pdf
File Format: application/pdf
File Function: First Version, 2006
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Publisher Info
Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0610.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 19 pages.
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:mac:wpaper:0610

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Postal: Sydney NSW 2109
Web page: http://www.econ.mq.edu.au/
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Related research
Keywords: size-sorted portfolios; ASX; structural GARCH; predictability;

Find related papers by JEL classification:
C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February. [Downloadable!] (restricted)
  2. George Milunovich, 2004. "Modeling dependence structure in size-sorted portfolios: A Structural Multivariate GARCH Model," Econometric Society 2004 Australasian Meetings 55, Econometric Society. [Downloadable!]
  3. Kroner, Kenneth F & Ng, Victor K, 1998. "Modeling Asymmetric Comovements of Asset Returns," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 11(4), pages 817-44.
  4. Conrad, Jennifer & Gultekin, Mustafa N & Kaul, Gautam, 1991. "Asymmetric Predictability of Conditional Variances," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 4(4), pages 597-622. [Downloadable!] (restricted)
  5. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc. [Downloadable!]
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  9. Lo, Andrew W & MacKinlay, A Craig, 1990. "When Are Contrarian Profits Due to Stock Market Overreaction?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(2), pages 175-205. [Downloadable!] (restricted)
    Other versions:
  10. Chang, Eric C. & McQueen, Grant R. & Pinegar, J. Michael, 1999. "Cross-autocorrelation in Asian stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 7(5), pages 471-493, December. [Downloadable!] (restricted)
  11. Jegadeesh N. & Titman S., 1995. "Short-Horizon Return Reversals and the Bid-Ask Spread," Journal of Financial Intermediation, Elsevier, vol. 4(2), pages 116-132, April. [Downloadable!] (restricted)
  12. Boudoukh, Jacob & Richardson, Matthew P & Whitelaw, Robert F, 1994. "A Tale of Three Schools: Insights on Autocorrelations of Short-Horizon Stock Returns," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 7(3), pages 539-73. [Downloadable!] (restricted)
  13. Roberto Rigobon & Brian Sack, 2003. "Spillovers Across U.S. Financial Markets," NBER Working Papers 9640, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Mech, Timothy S., 1993. "Portfolio return autocorrelation," Journal of Financial Economics, Elsevier, vol. 34(3), pages 307-344, December. [Downloadable!] (restricted)
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