On the predictability of equity markets

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Type and Duration

PhD-Thesis, September 2009 until December 2013 (finished)

Coordinator

Chair in Business Administration, Banking and Financial Management

Main Research

Wealth Management

Field of Research

Banking and Finance

Description

This dissertation aims to examine three core subjects within this framework: a) Reliability of qualitative predictions of professionals, b) a modified asset pricing model for prediction purposes, c) and a sophisticated asset allocation approach in order to evaluate performance of predictors in Wealth Management.
Opening analysis involves the Livingston panel, which is a biannual survey questioning professionals from various fields about expected developments of the economy and the US stock market. Members of the panel forecast future index levels in 6 and 12 months. Quality of these predictors has been in focus of analyses numerous times, yet no research has been conducted on the performance of members based on their sector belonging. Initial results show significant differences among groups and reveal partially better forecasting quality of academicians over bankers.
Second analysis takes a closer look at the consumption based asset pricing model (CCAPM), which received lot of attention recently. A proxy variable solution is able to solve empirical issues related to the model and with a further step this approach shall be modified for predicting proposes. Based on GMM tests the model seems to be inferior in terms of forecasting, but it sheds light on the strongly varying risk aversion of market participants. We also look for drivers of this phenomenon.
Closing research involves the Black-Litterman (BL) portfolio allocation model in combination with arbitrary linear econometric predictors. Key innovation of this sub-research is an approach in which goodness-of-fit measures of econometric estimations are linked to the confidence level of individual views of the BL model. Empirical findings show when using the Baltic-Dry Index as a predictor that this approach enables to enhance the performance of a global portfolio. Further simulation tests confirm empirical results and underline the robustness of the model.

Keywords

Public finance

Publications

  • Veress, A., & Kaiser, L. (2017). Forecasting Quality of Professionals: Does Affiliation Matter? Quarterly Review of Economics and Finance, 66, 159-168. (ABDC_2016: B; ABS: 2; ISI: 0.104; VHB_3: B)

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  • Vaschauner, M., Menichetti, M., Dreher, C., & Fausch, J. (2009). Exchange Rate Changes and Internationally Diversified Portfolios - Perspective of a European Investor. Paper presented at the International Scientific Conference Paper: Finance and Accounting - Theory and Practice, Development and Trends, Riga.

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  • Veress, A. (2013). Up or Down? Riding International Stock Markets with Binary Choice Models. University of Liechtenstein.

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