Are there benefits from trading strategy based on the returns spillovers to the emerging stock markets? Evidence from Poland

Janusz Brzeszczynski, Aleksander Welfe

    Research output: Contribution to journalArticle

    7 Citations (Scopus)

    Abstract

    This study investigates benefits from a trading strategy based on the spillovers from international stock markets to the Polish emerging stock market. The analysis is conducted within the framework of factor and predictive generalized autoregressive conditional heteroskedasticity (GARCH) models of the Warsaw Stock Exchange main index, WIC. We apply an approach in which the mean equation of the GARCH model includes a deterministic part incorporating cross-markets linkages. Both in-sample and out-of-sample forecasts from the estimated models are calculated. The trading strategy is based on signals from the out-of-sample predictions. The models' performance and benefits from adopting such a strategy are evaluated using direction quality measures. Our results suggest that predictive models using cross-market linkages can produce superior out-of-sample forecasts compared to benchmarks. © 2007 M.E. Sharpe, Inc. All rights reserved.

    Original languageEnglish
    Pages (from-to)74-92
    Number of pages19
    JournalEmerging Markets Finance and Trade
    Volume43
    Issue number4
    DOIs
    Publication statusPublished - Jul 2007

    Keywords

    • Direction quality measures
    • Emerging market
    • Factor GARCH
    • In-sample versus out-of-sample forecasts
    • Predictive GARCH
    • Stock market
    • Trading strategy

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