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The Effect of the Nikkei and the S&P on the All-Ordinaries: A Comparison of Three Models

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  • Lim, G C
  • McNelis, Paul D

Abstract

This paper examines the influence of shocks in the Japanese Nikkei Index and in the US S&P Index on the Australian All-Ordinaries Index. We present results from the application of three models--an autoregressive linear model, a GARCH-M model and a non-linear neural network model. According to standard forecast statistics, a restricted feedforward neural network model, incorporating parallel processing of information specified by time-zones, out-performs the linear and GARCH-M models. However, according to the Diebold-Mariano test of forecast accuracy, the mean loss differential between the neural network and the linear model is not statistically different from zero, while that between the neural network and the GARCH-M is statistically different from zero. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.

Suggested Citation

  • Lim, G C & McNelis, Paul D, 1998. "The Effect of the Nikkei and the S&P on the All-Ordinaries: A Comparison of Three Models," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(3), pages 217-228, July.
    • Handle: RePEc:ijf:ijfiec:v:3:y:1998:i:3:p:217-28
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    Cited by:

    1. Callum Scott, 2006. "Measuring Contagion in the South-East Asian Economic Crisis: An Exploration Using Artificial Neural Networks," Accounting Research Journal, Emerald Group Publishing, vol. 19(2), pages 139-152, September.
    2. Lidija Dedi & Burhan F. Yavas, 2016. "Return and volatility spillovers in equity markets: An investigation using various GARCH methodologies," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1266788-126, December.
    3. Christian A. Johnson, 2005. "Modelos de alerta temprana para pronosticar crisis bancarias: desde la extracción de señales a las redes neuronales," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 20(1), pages 95-121, June.
    4. Christian A. Johnson & Rodrigo Vergara, 2005. "The implementation of monetary policy in an emerging economy: the case of Chile," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 20(1), pages 45-62, June.
    5. Yasemin Deniz Akarım, 2013. "A Comparison of Linear and Nonlinear Models in Forecasting Market Risk: The Evidence from Turkish Derivative Exchange," Journal of Economics and Behavioral Studies, AMH International, vol. 5(3), pages 164-172.

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