Download or read book Three Essays in Stock Return Volatility written by Ali Ebrahim Nejad and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on Stock Market Volatility written by Chengbo Fu and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays on stock market volatility. In the first essay, we show that investors will have the information in the idiosyncratic volatility spread when using two different models to estimate idiosyncratic volatility. In a theoretical framework, we show that idiosyncratic volatility spread is related to the change in beta and the new betas from the extra factors between two different factor models. Empirically, we find that idiosyncratic volatility spread predicts the cross section of stock returns. The negative spread-return relation is independent from the relation between idiosyncratic volatility and stock returns. The result is driven by the change in beta component and the new beta component of the spread. The spread-relation is also robust when investors estimate the spread using a conditional model or EGARCH method. In the second essay, the variance of stock returns is decomposed based on a conditional Fama-French three-factor model instead of its unconditional counterpart. Using time-varying alpha and betas in this model, it is evident that four additional risk terms must be considered. They include the variance of alpha, the variance of the interaction between the time-varying component of beta and factors, and two covariance terms. These additional risk terms are components that are included in the idiosyncratic risk estimate using an unconditional model. By investigating the relation between the risk terms and stock returns, we find that only the variance of the time-varying alpha is negatively associated with stock returns. Further tests show that stock returns are not affected by the variance of time-varying beta. These results are consistent with the findings in the literature identifying return predictability from time-varying alpha rather than betas. In the third essay, we employ a two-step estimation method to separate the upside and downside idiosyncratic volatility and examine its relation with future stock returns. We find that idiosyncratic volatility is negatively related to stock returns when the market is up and when it is down. The upside idiosyncratic volatility is not related to stock returns. Our results also suggest that the relation between downside idiosyncratic volatility and future stock returns is negative and significant. It is the downside idiosyncratic volatility that drives the inverse relation between total idiosyncratic volatility and stock returns. The results are consistent with the literature that investor overreact to bad news and underreact to good news.
Download or read book Three Essays on Stock Market Volatility and Stock Return Predictability written by Shu Yan and published by . This book was released on 2000 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on Volatility written by Peilin Hsieh and published by . This book was released on 2013 with total page 318 pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation focuses on economic studying of volatility issues. Three essays are contained in my dissertation. Essay 1 extends a microstructure model to explain the change of volatility and thus links traders' belief to the volatility change. Our model shows that when market is more uncertain about the value of the stock, the higher the (return) volatility. Essay 2 turns to explore more economic factors that could cause volatility regime switch. We find that US stock return processes, including drift, diffusion, and jump, differ along with US political cycle. Our results imply that the presidency in different parties has distinct policy making processes and thus influence the way information flows into the market, altering the return processes. In the final essay, we document and explain a volatility Bid-Ask spread pattern that increases as time to maturity decreases. Our research develops a model that explains the volatility spread pattern. We show that, as time passes, the required hedging uncertainty premium charged by the liquidity providers decays more slowly while the premium contained in the quoted options price decays at an increasingly higher rate which is determined by the option pricing model. Therefore, liquidity providers need to increase asking and decrease bidding volatility to maintain the profit necessary to compensate slowly decaying hedging uncertainty premium. Our results strongly suggest that studies on volatility spread should detrend the data to make the estimation models correct as well as the series stationary. Without adjusting the trend and autocorrelation problems, statistical results are inaccurate and misleading. More importantly, based on our theoretical model, we also find that: (a) the implied volatility spread does not increase in proportion to the increase of implied volatility, and (b) the increase of volatility uncertainty is not a sufficient condition for an increase in the percentage spread. Finally, to augment the validity of our claims, we provide rigorous econometric tests which support our propositions.
Download or read book Three Essays on Information Volatility and Crises in Equity Markets written by Shane K. Clark and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay 3 investigates the relation between proxies for investor sentiment and stock market crises and recoveries on international indices. Using an Early-Warning-System (EWS) model, the essay examines whether investor sentiment is a useful predictor for the occurrence of stock market crises and early signs of recovery. Three alternative proxies are used to measure investor sentiment, including previously cited measures of stock market riskiness, investors' risk aversion and investors' optimism about stock markets. The results show that investor sentiment is overall a significant predictor of the occurrence of crises within a one year period, and that the addition of sentiment into early warning signal models of stock market crises can improve the predictive performance of the model (increases in investor sentiment increase the probability of occurrence of a crisis, which is in line with previous contributions finding a negative lead-lag relation between sentiment and stock returns). The extension of the model to early signs of recoveries also shows that sentiment is a reliable predictor. The measure of stock market riskiness (Baker and Wurgler, 2006) is found to be a better predictor than the Volatility Index (VIX) and the Put-to-Call Ratio (PCR). The cross-country comparison results confirms the literature findings that the link between sentiment and stock market returns varies across indices and cultures, as the predictive power of the variable appears strongest in the French and U.S. indices.
Download or read book Three Essays on the Predictability of Stock Returns written by Amit Goyal and published by . This book was released on 2001 with total page 374 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on the Volatility of Finnish Stock Returns written by Marko S. Maukonen and published by . This book was released on 2004 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on Volatility written by Stefano Mazzotta and published by . This book was released on 2005 with total page 410 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This dissertation is in the form of one survey paper and three essays on the topic of volatility. The unifying feature that permeates the entire thesis is the focus on the measurement and use of conditional second moment of equities and currencies as a measure of risk for asset pricing and policy purposes in the context of international markets." --
Download or read book Three Essays on Empirical Asset Pricing written by Gang Li and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains three essays on empirical asset pricing. In the first essay, I study the relationship between idiosyncratic volatility and expected returns of risky assets. I find that when the true asset pricing model cannot be identified, the idiosyncratic volatility obtained from a misspecified model contains information regarding the hedge portfolio in Merton's (1973) ICAPM. Empirically, I find that from 1815 to 2018, a combination of equal-weighted idiosyncratic volatility (EWIV) and value-weighted idiosyncratic volatility (VWIV) can strongly forecast stock market returns over short- and long-term horizons. Furthermore, EWIV and VWIV jointly can explain the cross-section of average stock returns. I show that the combination of EWIV and VWIV is a proxy for the conditional covariance risk in the ICAPM. The deduction also provides new insights concerning the tail risk measure proposed by Kelly and Jiang (2014). The second essay is a joint work with Bing Han. We propose a new and robust predictor of stock market returns and real economic activities based on information from equity options. We aggregate the difference in implied volatilities of at-the-money call and put options across stocks and find that the aggregate implied volatility spread (IVS) is significantly and positively related to future stock market returns. We attribute the predictive power to common informed trading in equity options instead of time-varying risk premium. The third essay, coauthored with Yoontae Jeon and Raymond Kan, studies the expected option return under an extended Black-Scholes model that incorporates the presence of stock return autocorrelation. We show that expected returns of both call and put options are increasing functions of return autocorrelation coefficient of the underlying stock. We find strong empirical evidence from the cross-section of average returns of equity options to support this prediction. Average returns of calls and puts as well as straddle returns all show monotonically increasing relationship with the degree of underlying stock's return autocorrelation coefficient. We also examine how the information on stock return autocorrelation helps investors to improve the out-of-sample performance of their portfolios.
Download or read book Three Essays on Firm specific Volatility written by Maria Gabriela Schutte and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The central objective of my dissertation is to study the behavior of firm-specific volatility in countries around the world. Consistent with existing literature, I use firm-specific volatility to measure two important concepts: the information content of stocks and firm-specific risk. In Chapter One I hypothesize that the institutional environment in a country has direct consequences on firm-specific risk. A stronger institutional environment results in higher product market competition, higher firm turnover, and higher rates of technological innovation. Consistent with my predictions, I find that creative destruction explains a significant proportion of the cross-sectional differences in firm specific volatility in 40 countries. In Chapter Two I look at the cyclical fluctuations of comovement in the US and 27 other countries during the period 1980-2005. I find that, in general, comovement tends to be countercyclical. Additionally, I find wide cross-sectional variation in the strength of association between comovement and the business cycle. This strength of association positively correlates to a measure of variability in information production. In turn, I find that the information environment can reduce variability in information production and reduce cyclical fluctuations in stock return correlations. Finally, in Chapter I find that idiosyncratic risk has explanatory power on the cross-section of expected returns in international markets. I find strong support to the theory in all countries under study. In eight of the fifteen countries surveyed the relation is significantly positive while in the remaining seven countries the relation is zero. In no instance do I find the relation to be negative. In addition, the results from my analysis are economically significant. I find that after controlling for stock characteristics (beta, size, and momentum) the response in excess returns to a 1% increase in monthly-expected idiosyncratic risk ranges across countries between zero and one half of a percent.
Download or read book Stock Market Volatility and Price Discovery written by Jose Gonzalo Rangel and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on Idiosyncratic Volatility written by Anas Aboulamer and published by . This book was released on 2015 with total page 157 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays. The first essay (chapter two) examines the relationship between idiosyncratic volatility and future returns in the Canadian market. The negative relationship between realized idiosyncratic volatility (RIvol) and future returns uncovered by Ang et al. (2006) for the US market has been attributed to return reversals. For the Canadian market where return reversals have considerably less importance, we find that RIvol is positively related to future returns, even after controlling for risk loadings, illiquidity and reversals. Unlike the findings of Bali et al. (2011) for the US market, we find for the Canadian market that the relationship between extreme positive returns and future returns is positive and that idiosyncratic volatility is consistently positively related to future returns. The second essay (chapter three) discusses the relationship between closed end fund discounts and the level of uncertainty about its holdings. Our trade-off model states that the intrinsic premium of a closed-end fund (CEF) is equal to the CEF’s price minus both its NAVPS (net asset value per share) and the net present value (NPV) of its future benefits from liquidity, managerial abilities and leverage minus its managerial costs. Any additional premium will persist to the extent that arbitrage between these two price series is both costly and risky. We find that arbitrage incompleteness due to the uncertainties about this NPV and the CEF’s holdings, as captured by idiosyncratic risk and other proxies, explains over two-thirds of the variation in CEF premiums or their changes. As expected, we find that the CEF premium is negatively related to gross leverage, management fees, cash and bond holdings, and positively related to liquidity enhancement, CEF performance and net leverage. These results are consistent with our finding that changes in CEF prices and NAVPS are more integrated than segmented using the Kappa test of Kapadia and Pu (2012). The third essay (chapter four) investigates the information content of idiosyncratic volatility around the public release of M&A rumors. We examine the releases of hand-collected initial rumors about potential M&A for 2250 firms. Unlike previous research, we find that a strategy of investing in firms with rumors of lower (greater) credibility yields negative (positive) changes in idiosyncratic volatilities around the rumor dates and subsequent returns. We argue that this asymmetric effect on idiosyncratic volatilities is linked to asymmetric changes in the heterogeneity of the probabilities of actual M&A when conditioned on rumor credibility. Changes in idiosyncratic volatilities are positively related to the market implicit probabilities of M&A as measured by the ratio of the market values at the M&A announcement and rumor dates.
Download or read book Three Essays in Economics and Finance written by Valter Lazzari and published by . This book was released on 1993 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on Stock Returns and Idiosyncratic Risk written by Yingtong Dai and published by . This book was released on 2022 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays on Empirical Asset Pricing written by Fei Fang and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation focuses on empirical asset pricing, including stock and options pricing. In the first and third chapter, we examine the linkage between stock market and options market at firm level. In Chapter Two, we documents the impact that systematic variance risk has for option prices of individual stocks. In the first chapter, we study the relation between future stock returns and option-based measures. We find that the options-based measure - future stock return relation is strongest for relatively less liquid stocks. After taking transaction costs into consideration, the risk-adjusted returns of the long-short stock portfolios do not differ significantly between stock liquidity groups. This chapter provides better understanding on the options-based stock return predictability. In the second chapter, we construct novel factors to mimic variance risk related to firm characteristics using individual stocks' variance risk premium. We then document that market variance risk premium and variance risk mimicking factors have strong explanatory power for option prices. Our new analytic framework links the variance risk factors related to firm characteristics to the individual equity option price structure. In the third chapter, we provide additional empirical results on how stock price can affect option prices. Our preliminary results reveal a link between the informational inefficiency of stock price and option prices. We find that a greater departure from random walk leads to a lower level of implied volatility (compared to realized volatility) and a steeper implied volatility curve.
Download or read book Three Essays in Empirical Asset Pricing written by Alessio Alberto Saretto and published by . This book was released on 2006 with total page 322 pages. Available in PDF, EPUB and Kindle. Book excerpt:
