Download or read book The Asymmetric Impact of Firm Specific and of Index Returns on the Volatility Processes of Individual Stocks written by Nikolaos Voukelatos and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article examines the volatility processes of the 30 constituent stocks of the Dow Jones Industrial Average (DJIA) from 1998 to 2007. Estimating the standard Glosten, Jagannathan and Runkle (GJR) model across the DJIA's components confirms previous empirical findings of individual stocks' conditional variances being less asymmetric than that of the parent index. A modified specification is then tested, termed the GJR-I, where lagged signed market returns have replaced firm-specific returns. The results suggest that individual stock volatility is significantly correlated with past signed index returns and that the asymmetry phenomenon is more pronounced with respect to market news compared to firm-specific news. This result still holds after estimating an extended specification where the conditional variance responds both to idiosyncratic and systematic innovations. The fact that individual stock volatility responds more asymmetrically to market returns than to firm specific returns stands in contrast to the 'leverage effect' as well as 'volatility feedback' explanations, but it is consistent with the hypothesis of the volatility asymmetry phenomenon being a 'down market effect'

Download or read book Have Individual Stocks Become More Volatile written by John Y. Campbell and published by . This book was released on 2000 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a disaggregated approach to study the volatility of common stocks at the market, industry, and firm levels. Over the period 1962-97 there has been a noticeable increase in firm-level volatility relative to market volatility. Accordingly correlations among individual stocks and the explanatory power of the market model for a typical stock have declined, while the number of stocks needed to achieve a given level of diversification has increased. All the volatility measures move together countercyclically and help to predict GDP growth. Market volatility tends to lead the other volatility series. Factors that may be responsible for these findings are suggested.

Download or read book Asymmetric and Crash Effects in Stock Volatility for the S P 100 Index and its Constituents written by Ser-Huang Poon and published by . This book was released on 2001 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: The volatility process of the Samp;P 100 index and all its constituent stocks are compared after estimating ARCH models from ten years of daily returns, from 1983 to 1992. The leverage effect of Black (1976) is estimated from an extension of the asymmetric volatility model of Glosten et al (1993) that isolates the effects of the crash in October 1987. The index and the majority of stocks have a greater volatility response to negative returns than to positive returns and the asymmetry is higher for the index than for most stocks. Conclusions about volatility asymmetry and persistence change when the crash is considered to be an extraordinary event.

Download or read book Dispersion and Volatility in Stock Returns written by John Y. Campbell and published by . This book was released on 1998 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies three different measures of monthly stock market volatility: the time-series volatility of daily market returns within the month; the cross-sectional volatility or 'dispersion' of daily returns on industry portfolios, relative to the market, within the month; and the dispersion of daily returns on individual firms, relative to their industries, within the month. Over the period 1962-97 there has been a noticeable increase in firm-level volatility relative to market volatility. All the volatility measures move together in a countercyclical fashion. While market volatility tends to lead the other volatility series, industry-level volatility is a particularly important leading indicator for the business cycle.

Download or read book Asymmetric Volatility and Risk in Equity Markets written by Geert Bekaert and published by . This book was released on 1997 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: It appears that volatility in equity markets is asymmetric: returns and conditional volatility are negatively correlated. We provide a unified framework to simultaneously investigate asymmetric volatility at the firm and the market level and to examine two potential explanations of the asymmetry: leverage effects and time-varying risk premiums. Our empirical application uses the market portfolio and portfolios with different leverage constructed from Nikkei 225 stocks, extending the empirical evidence on asymmetry to Japanese stocks. Although volatility asymmetry is present and significant at the market and the portfolio levels, its source differs across portfolios. We find that it is important to include leverage ratios in the volatility dynamics but that their economic effects are mostly dwarfed by the volatility feedback mechanism. Volatility feedback is enhanced by a phenomenon that we term covariance asymmetry: conditional covariances with the market increase only significantly following negative market news. We do not find significant asymmetries in conditional betas.

Download or read book Recent Advances in Theory and Methods for the Analysis of High Dimensional and High Frequency Financial Data written by Norman R. Swanson and published by MDPI. This book was released on 2021-08-31 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recently, considerable attention has been placed on the development and application of tools useful for the analysis of the high-dimensional and/or high-frequency datasets that now dominate the landscape. The purpose of this Special Issue is to collect both methodological and empirical papers that develop and utilize state-of-the-art econometric techniques for the analysis of such data.

Download or read book Geopolitical Risk on Stock Returns Evidence from Inter Korea Geopolitics written by Seungho Jung and published by International Monetary Fund. This book was released on 2021-10-22 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate how corporate stock returns respond to geopolitical risk in the case of South Korea, which has experienced large and unpredictable geopolitical swings that originate from North Korea. To do so, a monthly index of geopolitical risk from North Korea (the GPRNK index) is constructed using automated keyword searches in South Korean media. The GPRNK index, designed to capture both upside and downside risk, corroborates that geopolitical risk sharply increases with the occurrence of nuclear tests, missile launches, or military confrontations, and decreases significantly around the times of summit meetings or multilateral talks. Using firm-level data, we find that heightened geopolitical risk reduces stock returns, and that the reductions in stock returns are greater especially for large firms, firms with a higher share of domestic investors, and for firms with a higher ratio of fixed assets to total assets. These results suggest that international portfolio diversification and investment irreversibility are important channels through which geopolitical risk affects stock returns.

Download or read book A Behavioral Approach to Asset Pricing written by Hersh Shefrin and published by Elsevier. This book was released on 2008-05-19 with total page 636 pages. Available in PDF, EPUB and Kindle. Book excerpt: Behavioral finance is the study of how psychology affects financial decision making and financial markets. It is increasingly becoming the common way of understanding investor behavior and stock market activity. Incorporating the latest research and theory, Shefrin offers both a strong theory and efficient empirical tools that address derivatives, fixed income securities, mean-variance efficient portfolios, and the market portfolio. The book provides a series of examples to illustrate the theory. The second edition continues the tradition of the first edition by being the one and only book to focus completely on how behavioral finance principles affect asset pricing, now with its theory deepened and enriched by a plethora of research since the first edition

Download or read book Volatility written by Robert A. Jarrow and published by . This book was released on 1998 with total page 472 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.

Download or read book Market Volatility and Investor Confidence written by New York Stock Exchange. Market Volatility and Investor Confidence Panel and published by . This book was released on 1990 with total page 396 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Volatility Clustering Asymmetry and Hysteresis in Stock Returns written by Michel Crouhy and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Encompassing a very broad family of ARCH-GARCH models we show that heteroskedasticity, already well documented for the US market, is a worldwide phenomenon. The AT-GARCH (1,1) model, where volatility rises more in response to bad news than to good news, and where news is considered bad only below a certain level, is found to be a remarkably robust representation of worldwide stock market returns. The residual structure is then captured by extending ATGARCH (1,1) to an hysteresis model, HGARCH, where we model structured memory effects from past innovations. Obviously, this feature relates to the psychology of the markets and the way traders process information. For the French stock market we show that a shock of either sign may affect volatility differently, depending on the recent past being characterized by either all positive or all negative returns. In the same way a longer term trend of either sign may also influence the impact on volatility of current innovations. It is found that bad news is discounted very quickly in volatility, this effect is reinforced when it comes after a negative trend in the stock index. On the opposite, good news has a very small impact on volatility except when it is clustered over a few days, which in this case reduces volatility substantially.

Download or read book Commodities written by M. A. H. Dempster and published by CRC Press. This book was released on 2022-12-09 with total page 864 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since a major source of income for many countries comes from exporting commodities, price discovery and information transmission between commodity futures markets are key issues for continued economic development. Commodities: Fundamental Theory of Futures, Forwards, and Derivatives Pricing, Second Edition covers the fundamental theory of and derivatives pricing for major commodity markets, as well as the interaction between commodity prices, the real economy, and other financial markets. After a thoroughly updated and extensive theoretical and practical introduction, this new edition of the book is divided into five parts – the fifth of which is entirely new material covering cutting-edge developments. Oil Products considers the structural changes in the demand and supply for hedging services that are increasingly determining the price of oil Other Commodities examines markets related to agricultural commodities, including natural gas, wine, soybeans, corn, gold, silver, copper, and other metals Commodity Prices and Financial Markets investigates the contemporary aspects of the financialization of commodities, including stocks, bonds, futures, currency markets, index products, and exchange traded funds Electricity Markets supplies an overview of the current and future modelling of electricity markets Contemporary Topics discuss rough volatility, order book trading, cryptocurrencies, text mining for price dynamics and flash crashes

Download or read book Stock Returns Implied Volatility Innovations and the Asymmetric Volatility Phenomenon written by Chris T. Stivers and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the dynamic relation between daily stock returns and daily innovations in option-derived implied volatilities. By simultaneously analyzing innovations in index-level and firm-level implied volatilities, we distinguish between innovations in systematic and idiosyncratic volatility in an effort to better understand the asymmetric volatility phenomenon. Our results indicate that the relation between stock returns and innovations in systematic volatility (idiosyncratic volatility) is substantially negative (near zero). These results suggest that asymmetric volatility is primarily attributed to systematic market-wide factors, rather than aggregated firm-level effects. We also present evidence that supports our assumption that innovations in implied volatility are good proxies for innovations in expected stock volatility.

Download or read book Asymmetric Effects of Return and Volatility on Correlation between International Equity Markets written by Abderrahim Taamouti and published by . This book was released on 2009 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: How the correlation between equity returns behaves during market turmoils has been an issue of discussion in the international finance literature. Some research suggest an increase of correlation during volatile periods [Ang and Bekaert, 2002], while others argue its stability [Forbes and Rigobon, 2002]. In this paper, we study the impact of returns and volatility on correlation between international equity markets. Our objective is to determine if there is any asymmetry in correlation and identify the main explanation for this asymmetry. Within a framework of autoregressive models we quantify the relationship between return, volatility, and correlation using the generalized impulse response function and we test for the asymmetries in the return-correlation and volatility-correlation relationships. We also examine the implications of these asymmetric effects for the optimal international portfolio. Empirical evidence using weekly data on US, Canada, UK, and France equity indices, show that without taking into account the effect of return, there is an asymmetric impact of volatility on correlation. The volatility seems to have more impact on correlation during market upturn periods than during downturn periods. However, once we introduce the effect of return, the asymmetric impact of volatility on correlation disappears. These observations suggest that, the relation between volatility and correlation is an association rather than a causality. The strong increase in the correlation is driven by the market direction and the level of return rather than the level of the volatility. These results are confirmed using some tests of the asymmetry in volatility-correlation and return-correlation relationships in separate models and then in a joint model. Finally, we find that taking into account the asymmetric effect of return on correlation leads to an average financial gain ranged between 3.35 and 37.25 basis points for optimal international diversification.

Download or read book The Handbook of News Analytics in Finance written by Gautam Mitra and published by John Wiley & Sons. This book was released on 2011-07-13 with total page 384 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook of News Analytics in Finance is a landmarkpublication bringing together the latest models and applications ofNews Analytics for asset pricing, portfolio construction, tradingand risk control. The content of the Hand Book is organised to provide arapid yet comprehensive understanding of this topic. Chapter 1 setsout an overview of News Analytics (NA) with an explanation of thetechnology and applications. The rest of the chapters are presentedin four parts. Part 1 contains an explanation of methods and modelswhich are used to measure and quantify news sentiment. In Part 2the relationship between news events and discovery of abnormalreturns (the elusive alpha) is discussed in detail by the leadingresearchers and industry experts. The material in this part alsocovers potential application of NA to trading and fund management.Part 3 covers the use of quantified news for the purpose ofmonitoring, early diagnostics and risk control. Part 4 is entirelyindustry focused; it contains insights of experts from leadingtechnology (content) vendors. It also contains a discussion oftechnologies and finally a compact directory of content vendor andfinancial analytics companies in the marketplace of NA. Thebook draws equally upon the expertise of academics andpractitioners who have developed these models and is supported bytwo major content vendors - RavenPack and Thomson Reuters - leadingproviders of news analytics software and machine readablenews. The book will appeal to decision makers in the banking, finance andinsurance services industry. In particular: asset managers;quantitative fund managers; hedge fund managers; algorithmictraders; proprietary (program) trading desks; sell-side firms;brokerage houses; risk managers and research departments willbenefit from the unique insights into this new and pertinent areaof financial modelling.

Download or read book News Arrival Jump Dynamics and Volatility Components for Individual Stock Returns written by John M. Maheu and published by . This book was released on 2011 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper models different components of the return distribution which are assumed to be directed by a latent news process. The conditional variance of returns is a combination of jumps and smoothly changing components. This mixture captures occasional large changes in price, due to the impact of news innovations such as earnings surprises, as well as smoother changes in prices which can result from liquidity trading or strategic trading as information disseminates. Unlike typical SV-jump models, previous realizations of both jump and normal innovations can feedback asymmetrically into expected volatility. This is a new source of asymmetry (in addition to good versus bad news) that improves forecasts of volatility particularly after large moves such as the '87 crash. A heterogeneous Poisson process governs the likelihood of jumps and is summarized by a time-varying conditional intensity parameter. The model is applied to returns from individual companies and three indices. We provide empirical evidence of the impact and feedback effects of jump versus normal return innovations, contemporaneous and lagged leverage effects, the time-series dynamics of jump clustering, and the importance of modeling the dynamics of jumps around high volatility episodes.

Download or read book The Distribution of Stock Return Volatility written by Torben G. Andersen and published by . This book was released on 2010 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We exploit direct model-free measures of daily equity return volatility and correlation obtained from high-frequency intraday transaction prices on individual stocks in the Dow Jones Industrial Average over a five-year period to confirm, solidify and extend existing characterizations of stock return volatility and correlation. We find that the unconditional distributions of the variances and covariances for all thirty stocks are leptokurtic and highly skewed to the right, while the logarithmic standard deviations and correlations all appear approximately Gaussian. Moreover, the distributions of the returns scaled by the realized standard deviations are also Gaussian. Consistent with our documentation of remarkably precise scaling laws under temporal aggregation, the realized logarithmic standard deviations and correlations all show strong temporal dependence and appear to be well described by long-memory processes. Positive returns have less impact on future variances and correlations than negative returns of the same absolute magnitude, although the economic importance of this asymmetry is minor. Finally, there is strong evidence that equity volatilities and correlations move together, possibly reducing the benefits to portfolio diversification when the market is most volatile. Our findings are broadly consistent with a latent volatility fact or structure, and they set the stage for improved high-dimensional volatility modeling and out-of-sample forecasting, which in turn hold promise for the development of better decision making in practical situations of risk management, portfolio allocation, and asset pricing.