IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v57y2021i3d10.1007_s11156-021-00969-2.html
   My bibliography  Save this article

Do economic statistics contain information to predict stock indexes futures prices and returns? Evidence from Asian equity futures markets

Author

Listed:
  • Jacinta Chan Phooi M’ng

    (University of Malaya)

  • Ham Yi Jer

    (University of Malaya)

Abstract

This research examines the impact of local and international market factors on the pricing of stock indexes futures in East Asian countries. The purpose of this paper is to present a study of the significant factors that determine the major stock indexes futures’ prices of Hong Kong, Malaysia, Singapore, South Korea and Taiwan. This study first investigates the relationships between Hang Seng Index Futures, KLCI Futures, SiMSCI Futures, KOSPI Futures, Taiwan Exchange Index Futures and local interest rates, dividend yields, local exchange rates, overnight S&P500 index and a newly constructed index, Asian Tigers Malaysia Index (ATMI). 11 years historical data of stock indexes futures and the economic statistics are studied; 10 years in-sample data are used for testing and developing the pricing models, and 1 year out-of-sample data is used for the purpose of verifying the predicted values of the stock indexes futures. Using simple linear regressions, local interest rates, dividend yields, exchange rates, overnight S&P500 and ATMI are found to have significant impact on these futures contracts. In this research, the next period close is predicted using simple linear regression and non-linear artificial neural network (ANN). An examination of the prediction results using nonlinear autoregressive ANN with exogenous inputs (NARX) shows significant abnormal returns above the passive threshold buy and hold market returns and also above the profits of simple linear regression (SLR). The empirical evidence of this research suggests that economic statistics contain information which can be extracted using a hybrid SLR and NARX trading model to predict futures prices with some degree of confidence for a year forward. This justifies further research and development of pricing models using fundamentally significant economic determinants to predict futures prices.

Suggested Citation

  • Jacinta Chan Phooi M’ng & Ham Yi Jer, 2021. "Do economic statistics contain information to predict stock indexes futures prices and returns? Evidence from Asian equity futures markets," Review of Quantitative Finance and Accounting, Springer, vol. 57(3), pages 1033-1060, October.
    • Handle: RePEc:kap:rqfnac:v:57:y:2021:i:3:d:10.1007_s11156-021-00969-2
    DOI: 10.1007/s11156-021-00969-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11156-021-00969-2
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11156-021-00969-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Cheng Few Lee, 2020. "Introduction to Financial Econometrics, Mathematics, Statistics, and Machine Learning," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 1, pages 1-99, World Scientific Publishing Co. Pte. Ltd..
    2. Jacinta Chan Phooi M’ng & Mohammadali Mehralizadeh, 2016. "Forecasting East Asian Indices Futures via a Novel Hybrid of Wavelet-PCA Denoising and Artificial Neural Network Models," PLOS ONE, Public Library of Science, vol. 11(6), pages 1-29, June.
    3. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    4. Miyakoshi, Tatsuyoshi, 2003. "Spillovers of stock return volatility to Asian equity markets from Japan and the US," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(4), pages 383-399, October.
    5. Chen, Sichong, 2012. "The predictability of aggregate Japanese stock returns: Implications of dividend yield," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 284-304.
    6. Thuraisamy, Kannan S. & Sharma, Susan Sunila & Ali Ahmed, Huson Joher, 2013. "The relationship between Asian equity and commodity futures markets," Journal of Asian Economics, Elsevier, vol. 28(C), pages 67-75.
    7. Roll, Richard & Ross, Stephen A, 1980. "An Empirical Investigation of the Arbitrage Pricing Theory," Journal of Finance, American Finance Association, vol. 35(5), pages 1073-1103, December.
    8. Yadav, Pradeep K. & Pope, Peter F., 1992. "Intraweek and intraday seasonalities in stock market risk premia: Cash and futures," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 233-270, February.
    9. Cheng Few Lee, 0. "Financial econometrics, mathematics, statistics, and financial technology: an overall view," Review of Quantitative Finance and Accounting, Springer, vol. 0, pages 1-50.
    10. Matthew Roope & Ralf Zurbruegg, 2002. "The intra‐day price discovery process between the Singapore Exchange and Taiwan Futures Exchange," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 22(3), pages 219-240, March.
    11. Szakmary, Andrew C. & Shen, Qian & Sharma, Subhash C., 2010. "Trend-following trading strategies in commodity futures: A re-examination," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 409-426, February.
    12. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    13. Hsinan Hsu & Janchung Wang, 2004. "Price Expectation and the Pricing of Stock Index Futures," Review of Quantitative Finance and Accounting, Springer, vol. 23(2), pages 167-184, September.
    14. Cheng-Few Lee & Joseph Finnerty & John Lee & Alice C Lee & Donald Wort, 2012. "Security Analysis, Portfolio Management, and Financial Derivatives," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8116, February.
    15. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," The Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
    16. Jingtao Yao & Chew Lim Tan & Hean-Lee Poh, 1999. "Neural Networks For Technical Analysis: A Study On Klci," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 221-241.
    17. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-887, September.
    18. Bradford Cornell & Kenneth R. French, 1983. "The pricing of stock index futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 3(1), pages 1-14, March.
    19. Fernandez-Rodriguez, Fernando & Gonzalez-Martel, Christian & Sosvilla-Rivero, Simon, 2000. "On the profitability of technical trading rules based on artificial neural networks:: Evidence from the Madrid stock market," Economics Letters, Elsevier, vol. 69(1), pages 89-94, October.
    20. Chen, Yu-Lun & Tsai, Wei-Che, 2017. "Determinants of price discovery in the VIX futures market," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 59-73.
    21. Frino, Alex & Hill, Amelia, 2001. "Intraday futures market behaviour around major scheduled macroeconomic announcements: Australian evidence," Journal of Banking & Finance, Elsevier, vol. 25(7), pages 1319-1337, July.
    22. Fung, Alexander Kwok-Wah & Lam, Kin & Lam, Ka-Ming, 2010. "Do the prices of stock index futures in Asia overreact to U.S. market returns?," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 428-440, June.
    23. Lee, Cheng F & Rui, Oliver M, 2000. "Does Trading Volume Contain Information to Predict Stock Returns? Evidence from China's Stock Markets," Review of Quantitative Finance and Accounting, Springer, vol. 14(4), pages 341-360, June.
    24. Cornell, Bradford & French, Kenneth R, 1983. "Taxes and the Pricing of Stock Index Futures," Journal of Finance, American Finance Association, vol. 38(3), pages 675-694, June.
    25. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    26. Peter R. Locke & P. C. Venkatesh, 1997. "Futures market transaction costs," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 17(2), pages 229-245, April.
    27. Cheng Few Lee, 2020. "Financial econometrics, mathematics, statistics, and financial technology: an overall view," Review of Quantitative Finance and Accounting, Springer, vol. 54(4), pages 1529-1578, May.
    28. A. Craig MacKinlay, Krishna Ramaswamy, 1988. "Index-Futures Arbitrage and the Behavior of Stock Index Futures Prices," The Review of Financial Studies, Society for Financial Studies, vol. 1(2), pages 137-158.
    29. M. A. H. Dempster & Elena Medova & Ke Tang, 2012. "Determinants of oil futures prices and convenience yields," Quantitative Finance, Taylor & Francis Journals, vol. 12(12), pages 1795-1809, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Un, Kuok Sin & Ausloos, Marcel, 2022. "Equity premium prediction: Taking into account the role of long, even asymmetric, swings in stock market behavior," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 608(P1).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cowan, Adrian M. & Joutz, Frederick L., 2006. "An unobserved component model of asset pricing across financial markets," International Review of Financial Analysis, Elsevier, vol. 15(1), pages 86-107.
    2. Koichiro Moriya & Akihiko Noda, 2023. "On the Time-Varying Structure of the Arbitrage Pricing Theory using the Japanese Sector Indices," Papers 2305.05998, arXiv.org, revised Mar 2024.
    3. Campbell, John Y, 1996. "Understanding Risk and Return," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 298-345, April.
    4. Fernando Rubio, 2005. "Eficiencia De Mercado, Administracion De Carteras De Fondos Y Behavioural Finance," Finance 0503028, University Library of Munich, Germany, revised 23 Jul 2005.
    5. Campbell, John Y, 1993. "Intertemporal Asset Pricing without Consumption Data," American Economic Review, American Economic Association, vol. 83(3), pages 487-512, June.
    6. Bernard Dumas, 1993. "Partial- Vs. General-Equilibrium Models of the International Capital Market," NBER Working Papers 4446, National Bureau of Economic Research, Inc.
    7. Hasan, M.Emrul, 2010. "Behavioral approach to Arbitrage Pricing Theory," MPRA Paper 26343, University Library of Munich, Germany.
    8. Zura Kakushadze, 2015. "Heterotic Risk Models," Papers 1508.04883, arXiv.org, revised Jan 2016.
    9. Zura Kakushadze & Willie Yu, 2016. "Statistical Risk Models," Papers 1602.08070, arXiv.org, revised Jan 2017.
    10. Shanken, Jay & Weinstein, Mark I., 2006. "Economic forces and the stock market revisited," Journal of Empirical Finance, Elsevier, vol. 13(2), pages 129-144, March.
    11. Attiya Y. Javed, 2000. "Alternative Capital Asset Pricing Models: A Review of Theory and Evidence," PIDE-Working Papers 2000:179, Pakistan Institute of Development Economics.
    12. Zura Kakushadze & Willie Yu, 2016. "Multifactor Risk Models and Heterotic CAPM," Papers 1602.04902, arXiv.org, revised Mar 2016.
    13. Gurmeet Singh, 2017. "Estimating Optimal Hedge Ratio and Hedging Effectiveness in the NSE Index Futures," Jindal Journal of Business Research, , vol. 6(2), pages 108-131, December.
    14. Dimson, Elroy & Mussavian, Massoud, 1999. "Three centuries of asset pricing," Journal of Banking & Finance, Elsevier, vol. 23(12), pages 1745-1769, December.
    15. Gur Huberman & Zhenyu Wang, 2005. "Arbitrage pricing theory," Staff Reports 216, Federal Reserve Bank of New York.
    16. Sangwon Suh & Wonho Song & Bong-Soo Lee, 2014. "A new method for forming asset pricing factors from firm characteristics," Applied Economics, Taylor & Francis Journals, vol. 46(28), pages 3463-3482, October.
    17. Avanidhar Subrahmanyam, 2010. "The Cross†Section of Expected Stock Returns: What Have We Learnt from the Past Twenty†Five Years of Research?," European Financial Management, European Financial Management Association, vol. 16(1), pages 27-42, January.
    18. Sotiris Staikouras, 2005. "Equity returns of financial institutions and the pricing of interest rate risk," Applied Financial Economics, Taylor & Francis Journals, vol. 15(7), pages 499-508.
    19. Kim Hiang Liow & Yuting Huang & Kai Li Heng, 2019. "Relationship between Foreign Macroeconomic Conditions and Asian-Pacific Public Real Estate Markets: The Relative Influence of the US and China," IJFS, MDPI, vol. 7(4), pages 1-28, October.
    20. Javid, Attiya Yasmin, 2008. "Time Varying Risk Return Relationship: Evidence from Listed Pakistani Firms," MPRA Paper 37561, University Library of Munich, Germany.

    More about this item

    Keywords

    Algorithm trading model; Artificial intelligence neural network; Economic statistics; Futures pricing model; Stock indexes futures;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:57:y:2021:i:3:d:10.1007_s11156-021-00969-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.