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We examine the efficiency of multivariate macroeconomic forecasts by estimating a vector autoregressive model on the forecast revisions of four variables ( GDP, inflation, unemployment and wages). Using a data set of professional forecasts for the G7 countries, we find evidence of cross-series revision dynamics. Specifically, forecasts revisions are conditionally correlated to the lagged forecast revisions of other macroeconomic variables, and the sign of the correlation is as predicted by conventional economic theory. This indicates that forecasters are slow to incorporate news across variables. We show that this finding can be explained by forecast underreaction. [ABSTRACT FROM AUTHOR]

We find strong evidence of regime switching in the relation between real stock prices and real activity for the UK over the period 1946–2002. Furthermore, there is evidence that the causality pattern from real stock returns to the IP growth rate varies across regimes: causality exists only in the low stock market volatility regime, while it does not exist in the high stock market volatility regime. As the latter largely refers to the period of inflation targeting in the UK, this finding uncovers the importance of monetary policy in insulating the real economy from unexpected financial market effects during periods of financial instability. Additional evidence of regime-dependence is uncovered using impulse response analysis. Finally, the US stock market is found to exercise significant regime-independent effects on the UK relation as a whole as well as on the future UK IP growth. Copyright © 2008 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

The Black–Scholes (BS; F. Black & M. Scholes, 1973) option pricing model, and modern parametric option pricing models in general, assume that a single unique price for the underlying instrument exists, and that it is the mid- (the average of the ask and the bid) price. In this article the authors consider the Financial Times and London Stock Exchange (FTSE) 100 Index Options for the time period 1992–1997. They estimate the ask and bid prices for the index, and show that, when substituted for the mid-price in the BS formula, they provide superior option price predictors, for call and put options, respectively. This result is reinforced further when they .t a non-parametric neural network model to market prices of liquid options. The empirical .ndings in this article suggest that the ask and bid prices of the underlying asset provide a superior fit to the mid/closing price because they include market maker's, compensation for providing liquidity in the market for constituent stocks of the FTSE 100 index. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:471–494, 2007 [ABSTRACT FROM AUTHOR]

The generally accepted factors that determine the bid-ask spread are volatility, trading volume and market value (Atkins and Dyl, 1997 ; Glosten and Harris, 1988 ; and Menyah and Paudyal, 2000). Following Kim and Verrecchia (1994) we include a measure of the disagreement in analysts’ earnings forecasts in our model of the bid ask spread. This measure serves as a proxy for the informational disadvantage of market makers with respect to informed traders. Market makers respond to the additional risk by increasing the bid-ask spread. We find that the disagreement amongst analysts is significant for horizons up to and including six months (and with the hypothesised sign) in explaining FTSE 100 company spreads, rendering strong empirical support for our model. [ABSTRACT FROM AUTHOR]

Evaluates the time series properties of financial ratios in Great Britain. Nonlinear mean-reverting processes; Pearson product moment correlation coefficient; Rejection frequencies using corrected critical values.

This paper uses scanner data to generate estimates of quality-adjusted price changes for video-recorders. We use hedonic regressions to derive estimates of the changing worth of each quality component. These are then applied to weighted changes in the mix of quality attributes of products to derive estimates of quality-adjusted price (QAP) changes. The data source used is electronic-point-of-sale (EPOS) scanner data that are available for a wide range of goods. This study provides an example of how such methods can be more widely applied. The estimates of QAP changes correspond to constant-utility, (hedonic) cost-of-living indexes defined in economic theory as the ratio of expenditure functions at constant utility allowing for changing prices and characteristics of goods. This method is proposed as an improvement on the existing direct method, which takes its estimates directly from the coefficients associated with 'time dummies' in a hedonic regression. We finally undertake a matching process, akin to that used by statistical offices, and compare the results. Direct comparisons with RPI estimates and these hedonic approaches are not easy since the approaches use quite different data sets. Our replication of a procedure akin to that used for the RPI on the scanner data set provides insights into sources of potential bias. [ABSTRACT FROM AUTHOR]