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We investigate the relationship between insider trading and stock returns in firms with concentrated ownership. To this end, we employ data from East Asian countries which span the period January 2003 to May 2012. Consistent with the previous literature, we find a significantly negative relation between the selling activity of insiders and stock returns. However, contrary to studies which focus on highly developed markets, we find that the buying activity of insiders is also inversely related to future stock returns. Our analysis shows that top directors with higher ownership levels drive this result, suggesting that the trading activity of insiders is not always associated with profit-making motives and can be explained by their level of ownership. Furthermore, we demonstrate that a trading strategy which focuses solely on purchases made by top directors with high ownership levels yields negative returns. The paper has important implications for outside investors who mimic the trading activity of insiders with the aim to realise profits. Postprint

We adjust the dividend–price ratio for share repurchases and investigate whether predictive power can be improved when constructing forecasts of the UK and French equity premia. Regulations in the two largest European stock markets allow us to employ actual repurchase data in our predictive regressions. Hence, we are able to overcome problems associated with markets characterised by less stringent disclosure requirements, where investors might have to rely on proxies for measuring repurchase activity. We find that predictability does not improve either in a statistical or in an economically significant sense once actual share repurchases are considered. Furthermore, we employ a proxy measure of repurchases which can be easily constructed in international markets and demonstrate that its predictive content is not in line with that of the actual repurchase data. Postprint

This paper evaluates the ability of dividend ratios to predict the equity premium. We conduct an out-of-sample comparative study and apply the Goyal and Welch (2003) methodology to equity premia derived from the UK FTSE All-Share and the S&P 500 indices. Preliminary in-sample univariate regressions reveal that in both markets the equity premium contains an element of predictability. However, out-of-sample the considered models outperform the historical moving average only in the UK context. This is confirmed by the graphical diagnostic which further indicates that dividend ratios are useful predictors of UK excess returns. Our paper provides a possible explanation of why dividend ratios might be more informative in the UK market and links these findings to a phenomenon that is not widely known in the predictability literature. Finally, Campbell and Shiller (1988b) identities are employed to account for the time-varying properties of the dividend ratio and dividend growth processes. It is shown that by instrumenting the models with the identities, forecasting ability can be further improved.

This paper investigates the relationship between stock market volatility and the business cycle in four major economies, namely the US, Canada, Japan and the UK. We employ both linear and nonlinear bivariate causality tests and we further conduct a multivariate analysis to explore possible spillover effects across countries. Our results suggest that there is a bidirectional causal relationship between stock market volatility and the business cycle within each country and additionally reveal that the recent financial crisis plays an important role in this context. Finally, we identify a significant impact of the US on the remaining markets.

Recent theoretical work suggests that signs of asset returns are predictable given that their volatilities are. This is the first paper to investigate whether the demand for information, approximated by the daily internet search volume index (SVI) from Google, can enhance volatility forecasts out-of-sample and subsequently induce better sign predictability of the S&P 500 daily returns. Our results reveal that the inclusion of the SVI variable in a number of GARCH family models leads to significantly better volatility forecasts in all cases. Moreover, we demonstrate that the sign of stock returns is predictable in contrast to return predictability in the levels which has previously proven difficult to detect in the US context. Finally, we provide novel evidence on the economic value of sign predictability and show that the SVI can help investors to form profitable investment strategies.

This paper examines the role of exchange rate volatility in determining real imports. As a robustness check, it further explores the impact of the recent global financial crisis which is a period characterized by heightened exchange rate volatility. More specifically, we investigate the impact of exchange rate volatility on UK real imports from Germany, Japan and the US during the period January 1991–March 2013. In contrast to most studies which focus on bilateral trade, we additionally explore the third country exchange rate volatility effect on UK imports. To capture the nonlinear features which often characterize macroeconomic data, we employ the asymmetric autoregressive distributed lag (ARDL) approach to cointegration. Our results suggest that exchange rate volatility plays an important role and reveal that there is a significant effect of the recent financial crisis on UK imports. This finding is consistent when we test for the third country volatility effect. Finally, we find that there is a significant causal relationship between exchange rate volatility and UK imports both in bilateral tests and in tests which account for the third country exchange rate volatility.

We adjust the dividend-price ratio for share repurchases and investigate whether predictive power can be improved when constructing forecasts of UK and French equity premia. Regulations in the two largest European stock markets allow us to employ actual repurchase data in our predictive regressions. Hence, we are able to overcome problems associated with markets characterised by less stringent disclosure requirements, where investors might have to rely on proxies for measuring repurchase activity. We find that predictability does not improve either in a statistical or in an economically significant sense once actual share repurchases are considered. Furthermore, we employ a proxy measure of repurchases which can be easily constructed in international markets and demonstrate that its predictive content is not in line with that of the actual repurchase data.