Forecast of the financial performance of the Chilean Stock Market: Jensen's Index and GARCH (1,1) models

Abstract

In this article we examined and projected the financial performance of chilean stocks classified in five sectors in terms of systematic national and international variables. We used data of monthly frequency between January 1997 and August 2008 for it. Furthermore we reviewed the empirical results available about the efficiency of the financial market, as well as the return distributions, degrees of linear dependence and a study of the predictive accurancy on the prices and stock returns of various works. Applying a GARCH (1,1) model on Jensen's index for every sector and incorporating restriction IGARCH to the variance regression, we found that it is advisable to take selling positions at the sector services, commerce and investment during the greater part of the period between September 2008 and June 2009. Also you can keep a long position, at least before March 2009, on the stocks of the sectors mining and manufacture. At these last sectors, it is also advised to speculate with a high level of risk because the present persistent levels of undervaluation throughout the period of prognoses.