Information Content of the Trajectory-Domain Models

Abstract

In this paper, we examine the information content in the trajectory- domain model proposed by Chen and He (2003). The data to be tested are three American stock indices, namely, the Dow Jones, Nasdaq, and S&P 500. We adopt two event study methods, the standardized- residual method (SRM) and the standardized cross-sectional method (SCSM), to test the abnormality of the aftermath return series. In addition, the GARCH-M plus MA(1) is regarded as the benchmark to be compared,with. It is found that some patterns of the models do transmit informative signals, but the signals are not persistent. They emerge during a period and then vanish, and vice versa