The robustness of the APT to alternative estimators

Article Abstract:

A study on the robustness of the Arbitrage Pricing Theory (APT) was conducted using the Fama and MacBeth method and an alternative one-step method involving the Errors In Variables (EIV) problem. A comparison of the two-step Fama and MacBeth methodology with the one-step procedure to estimate the APT on the UK stock market indicates that the APT is sensitive to both estimators. It is also concluded that the APT is not a valid model for the UK stock exchange.

Securities Exchanges, Models, Exchanges, Arbitrage

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The Overreaction Hypothesis and the UK stockmarket

Article Abstract:

The Overreaction Hypothesis is based on US evidence which proposes that people are predisposed to overreact to sudden, negative news and events. It is based on DeBondt and Thaler's study which found that stocks that have declined over the previous three- to five-year period are likely to perform better than earlier period winners over the next three to five years. This proposition is tested using UK data from the period 1955-1990. The results are discussed.

Securities & Commodities Exchanges, Information theory, Information theory in economics

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Extreme price clustering in the London equity index futures and options markets

Article Abstract:

Clustering is found to be directly proportional with volatility and transaction frequency with the proportion of odd ticks significantly higher during open market periods and lower near the close of trading. Even ticks are found to characterize around 98% of the quoted and trade prices for derivatives in the LIFFE stock index with bid-ask spreads and the number of odd ticks showing an inverse relationship.

Economics, Research and Development in the Social Sciences and Humanities, Analysis, Derivatives (Financial instruments), Pricing, Financial instruments

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