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Informed Trading in Government Bond Markets (BOE, 25 page read) A great paper that uses regulatory data to assess the predictive power of hedge fund and mutual fund trading behaviour. They find hedge funds’ daily trading positively forecasts gilt returns in the following one to five days – largely because they anticipate investor flows. Meanwhile, mutual fund trading positively predicts gilt returns, but over a one- to two-month horizon. Their ability to forecast changes in short-term interest rates partially explains this.
Stock-induced Google Trends and the Predictability of Sectoral Stock Returns (JOF, 16 page read) Using Google Trends as a proxy for investor sentiment can enhance stock market forecasting accuracy and outperforms a random walk model.
Tail Risk and Return Predictability for the Japanese Equity Market (JOE, 25 page read) Option market data is usable to forecast returns in the dollar-denominated Japanese stock markets. It works less well in local currency terms.
Does Joining the S&P500 Index Hurt Firms? (NBER, 26 page read) An excellent paper. It finds ‘positive announcement effect on the stock price of index inclusion has disappeared and the long-run impact of index inclusion has become negative.’