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

Julian Coutts ()
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Julian Coutts: Strategic Solutions Unit, Standard Life Investments

Journal of Asset Management, 2007, vol. 8, issue 3, No 2, 152-160

Abstract: 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.

Keywords: variance ratio tests; dynamic asset allocation; mean reversion (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1057/palgrave.jam.2250073

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