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Evidence for time-dependent structures in financial data series over long timescales: Opportunities for dynamic market risk allocation

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  • Julian Coutts

    (Strategic Solutions Unit, Standard Life Investments)

Abstract

Market participants have a natural timescale, and they only seek to profit from money-making ideas that have a chance of maturing on a similar timescale to that over which they are measured. Due to the increasingly short-term nature of fund management mandates, opportunities have arisen for those participants willing to take stances over the longer term. In this paper, we outline the rigorous tests that demonstrate the existence of money-making opportunities at long (multi-month to multi-year) timescales, as well as the conceptual arguments, and examples of real opportunities taken. Using the concept of surrogate data sets, we can convincingly reject the concept of independently identically distributed returns on a multi-month to multi-year timescale for stocks and indices, including the Barclays Capital Equity Gilt Study data for the 20th century.

Suggested Citation

  • Julian Coutts, 2007. "Evidence for time-dependent structures in financial data series over long timescales: Opportunities for dynamic market risk allocation," Journal of Asset Management, Palgrave Macmillan, vol. 8(3), pages 152-160, September.
    • Handle: RePEc:pal:assmgt:v:8:y:2007:i:3:d:10.1057_palgrave.jam.2250073
    DOI: 10.1057/palgrave.jam.2250073
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    References listed on IDEAS

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    1. John Y. Campbell & Yeung Lewis Chanb & M. Viceira, 2013. "A multivariate model of strategic asset allocation," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part II, chapter 39, pages 809-848, World Scientific Publishing Co. Pte. Ltd..
    2. Richardson, Matthew & Stock, James H., 1989. "Drawing inferences from statistics based on multiyear asset returns," Journal of Financial Economics, Elsevier, vol. 25(2), pages 323-348, December.
    3. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
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