On the predictive power of CAPE or Shiller’s PE ratio: the case of the Greek stock market

This paper examines the capability of the Cyclically Adjusted Price to Earnings (CAPE) or Shiller’s P/E ratio, along with other relative valuation ratios such as the P/E and the P/BV, to predict future returns of the FTSE/ASE Large Cap Index, starting from the development of the index (1997) to December 2018. We have herein used several regression models in order to examine the relationship between the above ratios and the future returns of 1, 3, 5 and 10 years. We show that, while P/E and P/BV ratios are not correlated to future returns, the CAPE ratio and its variation CAPE 5, which uses real 5 year earnings, are efficient estimators of future returns. Our results imply the informational inefficiency of the Greek Stock Market.

The Causality and Uncertainty of the COVID-19 Pandemic to Bursa Malaysia Financial Services Index's Constituents.

Valued in hundreds of billions of Malaysian ringgit, the Bursa Malaysia Financial Services Index's constituents comprise several of the strongest performing financial constituents in Bursa Malaysia's Main Market. Although these constituents persistently reside mostly within the large market capitalization (cap), the existence of the individual constituent's causal influence or intensity relative to each other's performance during uncertain or even certain times is unknown. Thus, the key purpose of this paper is to identify and analyze the individual constituent's causal intensity, from early 2018 (pre-COVID-19) to the end of the year 2021 (post-COVID-19) using Granger causality and Schreiber transfer entropy. Furthermore, network science is used to measure and visualize the fluctuating causal degree of the source and the effected constituents. The results show that both the Granger causality and Schreiber transfer entropy networks detected patterns of increasing causality from pre- to post-COVID-19 but with differing causal intensities. Unexpectedly, both networks showed that the small- and mid-caps had high causal intensity during and after COVID-19. Using Bursa Malaysia's sub-sector for further analysis, the Insurance sub-sector rapidly increased in causality as the year progressed, making it one of the index's largest sources of causality. Even after removing large amounts of weak causal intensities, Schreiber transfer entropy was still able to detect higher amounts of causal sources from the Insurance sub-sector, whilst Granger causal sources declined rapidly post-COVID-19. The method of using directed temporal networks for the visualization of temporal causal sources is demonstrated to be a powerful approach that can aid in investment decision making.

Holiday Effects in the US Equity Futures Markets

We investigate the holiday effect in US equity futures markets during three sub-periods 1993-2011, 1993-2020, and during the 2020 covid-19 year for small cap stocks measured by the Russell2000 and large cap stocks measured by the S&P500. All the days from -3 before the holiday to -1 had gains and for the large caps there were gains on +1 and +2. The effect is stronger for the small caps. The year 2020 had results similar to the longer series with positive gains. We show the various holidays by holiday day and observe that the -3 day had gains on all the holidays whereas the other days did not. The effect has diminished in the 1990s and 2000s and only the -3 day is statistically significant. The -3 day in the futures anticipates the cash move on -1 day.