Dynamic Linkages Between Trading Volume and Price Movements: Evidence for Small Firm Stocks

Recent theoretical and empirical studies suggest that volume conveys useful information to forecast stock price movements. We investigate the information content of volume for the stock indices of small-capitalization firms in the US and France. Information asymmetry problems tend to be more important for small-capitalization firms and it can be argued that the information content of volume should be more significant. We find that volume does indeed forecast returns of the small-capitalization stock indices. We also detect a positive contemporaneous relation between volume and absolute value of returns. The findings are qualitatively the same for data from the US and France

Three Essays on the Term Structure of Eurocurrency Rates.

This dissertation investigates the term structure relationship in financial markets by using Eurocurrency rates of several countries. The first essay tests the restrictions of the expectations hypothesis of term structure and the Fisher hypothesis in an interrelated fashion to characterize the changes in the slope and the level of Eurocurrency yield curves of numerous countries. It is argued that the Fisher relation explains the level of the yield curve and the expectations hypothesis determines the long run relationship between yields at different maturities at that level. Special emphasis is given to the information content of the yield curve for future inflation. A factor decomposition technique is used to extract the common trend driving the yield curve and it is found that this common tread contains information about the long-run behavior of the inflation rate for each country in the sample. This finding is consistent with the argument that rational agents in the market incorporate the predictable portion of the expected inflation into interest rates while setting prices. The second essay focuses on convergence of international money market term structures. According to the covered interest parity theorem, nominal yield curves should converge in the long run. The common factor driving each term structure is extracted to test for long run linkages and transitory components are used to test for short run linkages. The findings indicate that an international convergence has not occurred although the term structures of countries that are a member of the exchange rate mechanism of the European Union have a stable long run relationship. This finding is explained as a result of the adjustable fixed exchange rate system employed. The essay also tests for and rejects the German European Union dominance hypothesis. The third essay tests for the restrictions of the rational expectations/constant term premium hypothesis of term structure. It is discussed that the commonly used single-equation regression test of the hypothesis is biased in small samples. The short rate is decomposed into its permanent and transitory components to test the theory in an unbiased regression. The results support the rational expectations theory

The Macroeconomic Determinants of Volatility in Precious Metals Markets

We investigate key macroeconomic factors that impact the price returns of precious metals markets. The markets investigated were gold, silver, platinum and palladium; whereas the macroeconomic factors accommodated business cycle, monetary environment and financial market sentiment factors. The key findings present limited evidence that the same macroeconomic factors jointly influence the volatility processes of the precious metal price series, although there is some evidence of volatility feedback between the precious metals. This finding lends weight to views that individual commodities are too distinct to be considered a single asset class or represented by a single index; a finding of considerable importance for portfolio managers and investors.

Commodity prices and inflation: Testing in the frequency domain

We provide evidence for a long term, positive relation between commodity prices and inflation. However, this is only detected when frequency dependency in the regression is statistically accounted for, suggesting nonlinear dynamics between the variables. We also test whether commodity prices can be used to forecast inflation. Again relying on frequency domain methods, we indeed find support for long term causality from commodities to inflation. Moreover, the information content of commodity futures prices is robust to the effects of several financial and economic variables.Commodities Inflation Frequency domain

Energy Shocks and Financial Markets: Nonlinear Linkages

This paper examines the dynamic linkages between oil prices and the stock market. Prior work argues that daily oil futures price changes and the S&P 500 stock index movements are not related. This conclusion could be due to the fact that only linear linkages have been examined. Relying on nonlinear causality tests, this study provides evidence that oil shocks affect stock index returns, which is consistent with the documented influence of oil on economic output. Moreover, the study finds that the linkage between oil prices and the stock market was stronger in the 1990s.