This study investigates the performance of trend factors across different markets around the world and demonstrates that the trend factors perform well across most of developed markets and many emerging markets, outperforming the market portfolio, short-term reversal, momentum, and long-term reversal. We further examine how cultural and legal differences influence the performance of the trend factor trading strategy and find it is more profitable in countries where the individualism is higher and securities laws are better enforced. Finally, the global trend factor aggregating individual market trend factors performs well and explains various global portfolios’ returns. The findings suggest that the trend factors present a challenge to traditional risk-based asset pricing theories, and trend factor trading strategies may deserve more attention in international portfolio management.

We uncover a positive stock market risk-return tradeoff after controlling for the covariance of market returns with the value premium. Fama and French (1996) conjecture that the value premium proxies for investment opportunities; therefore, by ignoring it, early specifications suffer from an omitted variable problem that causes a downward bias in the risk-return tradeoff estimation. We also document a positive relation between the value premium and its conditional variance, and the estimated conditional value premium is strongly countercyclical. The latter evidence supports the view that value is riskier than growth in bad times, when the price of risk is high.

We provide evidence that a simple moving average timing strategy, when applied to portfolios of commodity futures, can generate superior performance to the buy-and-hold strategy. The outperformance is very robust. It can survive the transaction costs in the futures markets, it is not concentrated in a particular subperiod, and is robust to short-sale constraints, alternative specifications of the moving average lag length, alternative construction of the continuous time-series of futures prices, and impact from data mining. The outperformance of the timing strategy is not driven by the backwardation and contango. It is stronger during recession and can not be explained by macroeconomic variables. Finally, we confirm that the outperformance of the moving average timing strategy in the commodity futures comes from the successful market timing.

Using monthly stock and bond return data in the past 150 years (1855–2001) for both the US and the UK, this study documents time-varying stock–bond correlation over macroeconomic conditions (the business cycle, the inflation environment and monetary policy stance). There are different patterns of time variation in stock–bond correlations over the business cycle between US and UK, which implies that bonds may be a better hedge against stock market risk and offer more diversification benefits to stock investors in the US than in the UK. Further, there is a general pattern across both the US and the UK during the post-1923 subperiod and during the whole sample period: higher stock–bond correlations tend to follow higher short rates and (to a lesser extent) higher inflation rates.

We investigate the international transmission of inflation among G-7 countries using data-determined vector autoregression analysis, as advocated by Swanson and Granger [Swanson, N., Granger, C., 1997. Impulse response functions based on a causal approach to residual orthogonalization in vector autoregressions. Journal of the American Statistical Association 92, 357–367]. Over the period 1973–2003, we find that unexpected changes in US inflation have large effects on inflation in other countries, although they are not always the dominant international factor. Similarly, shocks to some other countries also have a statistically and economically significant influence on US inflation. Moreover, our evidence indicates that US inflation has become less vulnerable to foreign shocks since the early 1990s, mainly because of the diminished influence from Germany and France.

Traditional autocorrelation and variance ratio tests are based on serial uncorrelatedness rather than martingale difference. As such, they do not capture potential nonlinearity-in-mean, which could lead to misleading inferences in favor of the martingale hypothesis. This paper employs various parametric and nonparametric nonlinear models as well as several model comparison criteria to examine the potential martingale behavior of Euro exchange rates in the context of out-of-sample forecasts. The overall evidence indicates that, while martingale behavior cannot be rejected for Euro exchange rates with major currencies such as the Japanese yen, British pound, and US dollar, there is nonlinear predictability in terms of economic criteria with respect to several smaller currencies.