Our next meeting is on Thursday 20th May at YYC, starting at 19.45. Our speaker will be Tom Richards who is a Portfolio Manager at Ramsey Crookall & Co Ltd.
Tom will present a summary of the dissertation which he produced for his MSc in International Banking and Finance, awarded with distinction. He explored whether macro-economic variables can be used to explain and accurately forecast long-term stock movements.
The first part involved coupling Arbitrage Pricing Theory and a standard discounted value model to model macroeconomic risk factors (including interest rates, inflation, money supply, oil prices, GDP, unemployment, industrial production and housing starts) and stock prices within a Cointegration framework for the UK, US, Japan, France and Australia over a contemporary fifteen to thirty year time period. He found significant national endogenous structures and modelled full Vector Error Correction Models (VECM) that described both long run equilibrium relationships and also their transitory short run deviations from these equilibriums.
He then moved to formulate predictive Box-Jenkins and Naïve models in order to compare their performances against the VECM’s in a full dynamic and static out-of-sample forecasting comparison test for each national stock exchange structure; comparing both whole-period single summary statistics and intra-period decompositions in order to evaluate model accuracies. He found varying strengths of performance across the models. Particularly interesting were the substantial and sustained deviations from their endogenous macroeconomic fundamental values that were observed for all tested stock markets which have implications both for fundamental modelling and behavioural finance analysis.
Tom’s talk will be followed by an opportunity for questions over tea/coffee.
