Asia-Pacific Stock Return Predictability and Market Information Flows

Abstract

In this study, I investigate lead-lag relationships among Asia-Pacific country stock returns. Taking the GARCH effects into account, I estimate a prediction model, and find that lagged Singapore returns exhibit the strongest predictive ability for the returns of Asia-Pacific countries. Estimating this model, I find that lagged Singapore returns exhibit the strongest predictive ability for the returns of Asia-Pacific countries. The Asia-Pacific stock markets react with a delay of information contained in lagged Singapore returns about their fundamentals, and that information diffuses gradually across Asia-Pacific stock markets. Finally, using the MSPE-adjusted statistic, I provide out-of-sample evidence to examine the consistency of the predictive power of lagged Singapore returns.

KEY WORDS:

• Asia-Pacific markets
• information flows
• predictive ability
• stock returns