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Interpreting the concept of joint unpredictability of asset returns: A distance approach

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  • Focker, Fulvia
  • Triacca, Umberto

Abstract

This paper discusses the joint unpredictability of asset returns on two markets. It provides a necessary condition for joint unpredictability in term of distance between information sets. We conclude that the joint unpredictability requires a condition very strong and so, in this sense, it represents a “singularity”. The result should give a theoretical support to the empirical evidence in favor of the predictability of the returns.

Suggested Citation

  • Focker, Fulvia & Triacca, Umberto, 2006. "Interpreting the concept of joint unpredictability of asset returns: A distance approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 369(2), pages 765-770.
    • Handle: RePEc:eee:phsmap:v:369:y:2006:i:2:p:765-770
    DOI: 10.1016/j.physa.2006.01.068
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    References listed on IDEAS

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    1. Caporale, G. M. & Pittis, N., 1998. "Cointegration and predictability of asset prices1," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 441-453, June.
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    3. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 357-386.
    4. Pesaran, M Hashem & Timmermann, Allan, 1995. "Predictability of Stock Returns: Robustness and Economic Significance," Journal of Finance, American Finance Association, vol. 50(4), pages 1201-1228, September.
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    6. Richards, Anthony J., 1995. "Comovements in national stock market returns: Evidence of predictability, but not cointegration," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 631-654, December.
    7. Hassapis, Christis & Kalyvitis, Sarantis & Pittis, Nikitas, 1999. "Cointegration and joint efficiency of international commodity markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(2), pages 213-231.
    8. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    9. Triacca, Umberto, 2000. "Cointegration And Distance Between Information Sets," Econometric Theory, Cambridge University Press, vol. 16(1), pages 102-111, February.
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    Cited by:

    1. Umberto Triacca, 2013. "The Geometric Meaning of the Notion of Joint Unpredictability of a Bivariate VAR(1) Stochastic Process," Econometrics, MDPI, vol. 1(3), pages 1-10, November.

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