Mean reversion in the short horizon returns of UK portfolios

This paper will show that short horizon stock returns for UK portfolios are more predictable than suggested by sample autocorrelation co-efficients. Four capitalisation based portfolios are constructed for the period 1976–1991. It is shown that the first order autocorrelation coefficient of monthly returns can explain no more than 10% of the variation in monthly portfolio returns. Monthly autocorrelation coefficients assume that each weekly return of the previous month contains the same amount of information. However, this will not be the case if short horizon returns contain predictable components which dissipate rapidly. In this case, the return of the most recent week would say a lot more about the future monthly portfolio return than other weeks. This suggests that when predicting future monthly portfolio returns more weight should be given to the most recent weeks of the previous month, because, the most recent weekly returns provide the most information about the subsequent months' performance. We construct a model which exploits the mean reverting characteristics of monthly portfolio returns. Using this model we forecast future monthly portfolio returns. When compared to forecasts that utilise the autocorrelation statistic the model which exploits the mean reverting characteristics of monthlyportfolio returns can forecast future returns better than the autocorrelation statistic, both in and out of sample.

From icon to naturalised icon:a linguistic analysis of media representations of the BP Deepwater Horizon crisis

This research explores how news media reports construct representations of a business crisis through language. In an innovative approach to dealing with the vast pool of potentially relevant texts, media texts concerning the BP Deepwater Horizon oil spill are gathered from three different time points: immediately after the explosion in 2010, one year later in 2011 and again in 2012. The three sets of 'BP texts' are investigated using discourse analysis and semi-quantitative methods within a semiotic framework that gives an account of language at the semiotic levels of sign, code, mythical meaning and ideology. The research finds in the texts three discourses of representation concerning the crisis that show a movement from the ostensibly representational to the symbolic and conventional: a discourse of 'objective factuality', a discourse of 'positioning' and a discourse of 'redeployment'. This progression can be shown to have useful parallels with Peirce's sign classes of Icon, Index and Symbol, with their implied movement from a clear motivation by the Object (in this case the disaster events), to an arbitrary, socially-agreed connection. However, the naturalisation of signs, whereby ideologies are encoded in ways of speaking and writing that present them as 'taken for granted' is at its most complete when it is least discernible. The findings suggest that media coverage is likely to move on from symbolic representation to a new kind of iconicity, through a fourth discourse of 'naturalisation'. Here the representation turns back towards ostensible factuality or iconicity, to become the 'naturalised icon'. This work adds to the study of media representation a heuristic for understanding how the meaning-making of a news story progresses. It offers a detailed account of what the stages of this progression 'look like' linguistically, and suggests scope for future research into both language characteristics of phases and different news-reported phenomena.

Short-horizon excess returns and exchange rate and interest rate effects

stocks. We examine the effects of foreign exchange (FX) and interest rate changes on the excess returns of U.S. stocks, for short-horizons of 1-40 days. Our new evidence shows a tendency for the volatility of both excess returns and FX rate changes to be negatively related with FX rate and interest rate effects. Both the number of firms with significant FX rate and interest rate effects and the magnitude of their exposures increase with the length of the return horizon. Our finding seems inconsistent with the view that firms hedge effectively at short-return horizons.