Return predictability and contrarian profits of international index futures

Abstract

Using futures markets, we examine the lead‐lag relationships among 11 industrialized countries. Lagged monthly returns for several countries have return predictability comparable to those in the United States for the 1988–2016 period. The international futures markets are more correlated in market downturns, while the lead‐lag relationships are more significant in market upturns. Consistent with these asymmetric relationships, a contrarian strategy (in particular, by buying the losers) offers significant profits in an up market but not in a down market. The contrarian profits are not captured by a factor model using global equity factors and momentum profits.

Forecasting returns in the VIX futures market

“…The results of this effort have been somewhat mixed, with the benefits appearing only at best marginal; see, e.g., Welch and Goyal (2008) for a seminal example in the context of stock indices. Within the context of futures contracts the vast majority of studies have examined the predictability of stock index or commodity futures; see Hamilton and Wu (2015), Narayan et al (2015), Sun et al (2015), Mishra and Smyth (2016) and Tse (2018) for recent examples. By contrast, futures contracts on the volatility index (VIX) have received less attention in this regard; see Konstantinidi and Skiadopoulos (2011) and Psaradellis and Sermpinis (2016).…”

The role of jumps in the agricultural futures market on forecasting stock market volatility: New evidence

“…Specifically, many studies (see, e.g., Byun, Frijns, & Roh, 2018;Neely, Rapach, Tu, & Zhou, 2014;Rapach, Strauss, & Zhou, 2010;Timmermann, 2008;Tse, 2018) use a recursive method to forecast. Specifically, many studies (see, e.g., Byun, Frijns, & Roh, 2018;Neely, Rapach, Tu, & Zhou, 2014;Rapach, Strauss, & Zhou, 2010;Timmermann, 2008;Tse, 2018) use a recursive method to forecast.…”

“…There are two main forecasting window methods in the literature: rolling window and recursive/expanding window. Specifically, many studies (see, e.g., Byun, Frijns, & Roh, 2018;Neely, Rapach, Tu, & Zhou, 2014;Rapach, Strauss, & Zhou, 2010;Timmermann, 2008;Tse, 2018) use a recursive method to forecast. Therefore, in this subsection, we also choose the recursive/expanding window method to forecast future volatilities of the out-of-sample period.…”

The global latent factor and international index futures returns predictability

“…In particular, Rapach et al (2013) find that lagged US returns can be used to forecast returns in numerous non‐US industrialized nations but that lagged non‐US returns have a limited forecasting power as compared with US returns. Tse (2018) extends the sample from the international stock indices used by Rapach et al (2013) to international futures indices. Tse (2018) reports the predictive power for lagged US returns for the returns of other countries and further documents that some countries may bring influence on others in comparison with that from the US.…”