Download or read book Volatility Expectations and Returns written by Lars A. Lochstoer and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence that agents have slow-moving beliefs about stock market volatility that lead to initial underreaction to volatility shocks followed by delayed overreaction. These dynamics are mirrored in the VIX and variance risk premiums which reflect investor expectations about volatility and are also supported in surveys and in firm-level option prices. We embed these expectations into an asset pricing model and find that the model can account for a number of stylized facts about market returns and return volatility which are difficult to reconcile, including a weak, or even negative, risk-return tradeoff.

Download or read book Forecasting Expected Returns in the Financial Markets written by Stephen Satchell and published by Elsevier. This book was released on 2011-04-08 with total page 299 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasting returns is as important as forecasting volatility in multiple areas of finance. This topic, essential to practitioners, is also studied by academics. In this new book, Dr Stephen Satchell brings together a collection of leading thinkers and practitioners from around the world who address this complex problem using the latest quantitative techniques. *Forecasting expected returns is an essential aspect of finance and highly technical *The first collection of papers to present new and developing techniques *International authors present both academic and practitioner perspectives

Download or read book Expectations and Volatility of Long horizon Stock Returns written by Shmuel Kandel and published by . This book was released on 1989 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Expected and Realized Returns on Volatility written by Guanglian Hu and published by . This book was released on 2020 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Expected returns on market volatility, which can be obtained from VIX futures in closed form, predict subsequent multi-period realized volatility returns. Expected volatility returns are negative on average, but become more negative after volatility increases. This generates a positive relation with subsequent realized returns on volatility, which are more negative following increases in volatility. Expected volatility returns also predict future index returns, because realized volatility returns are negatively correlated with realized index returns. We show how these results are related to existing results on the predictive power of the market variance risk premium, the slope of the VIX term structure, and the VIX premium. The results are robust to a wide range of variations in the empirical setup.

Download or read book The Persistence of Volatility and Stock Market Fluctuations written by James M. Poterba and published by . This book was released on 1984 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the potential influence of changing volatility in stock market prices on the level of stock market prices. It demonstrates that volatility is only weakly serially correlated, implying that shocks to volatility do not persist. These shocks can therefore have only a small impact on stockmarket prices, since changes in volatility affect expected required rates of return for relatively short intervals. These findings lead us to be skeptical of recent claims that the stock market's poor performance during the 1970's can be explained by volatility-induced increases in risk premia.

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 Does Volatility Matter written by Giulio Bottazzi and published by . This book was released on 2009 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present results of an experiment on expectation formation in an asset market. Participants to our experiment must provide forecasts of the stock future return to computerized utility-maximizing investors, and are rewarded according to how well their forecasts perform in the market. In the Baseline treatment participants must forecast the stock return one period ahead; in the Volatility treatment, we also elicit subjective confidence intervals of forecasts, which we take as a measure of perceived volatility. The realized asset price is derived from a Walrasian market equilibrium equation with non-linear feedback from individual forecasts. Our experimental markets exhibit high volatility, fat tails and other properties typical of real financial data. Eliciting confidence intervals for predictions has the effect of reducing price fluctuations and increasing subjects’ coordination on a common prediction strategy. -- Experimental economics ; Expectations ; Coordination ; Volatility ; Asset pricing

Download or read book Heterogeneous Expectations and Long Range Correlation of the Volatility of Asset Returns written by Jérôme Coulon and published by . This book was released on 2010 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inspired by the recent literature on aggregation theory, we aim at relating the long range correlation of the stocks return volatility to the heterogeneity of the investors' expectations about the level of the future volatility. Based on a semi-parametric model of investors' anticipations, we make the connection between the distributional properties of the heterogeneity parameters and the auto-covariance/auto-correlation functions of the realized volatility. We report different behaviors, or change of convention, whose observation depends on the market phase under consideration. In particular, we report and justify the fact that the volatility exhibits significantly longer memory during the phases of speculative bubble than during the phase of recovery following the collapse of a speculative bubble.

Download or read book The Cross section of Volatility and Expected Returns written by Andrew Ang and published by . This book was released on 2004 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: "We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility have low average returns. In addition, we find that stocks with high idiosyncratic volatility relative to the Fama and French (1993) model have abysmally low average returns. This phenomenon cannot be explained by exposure to aggregate volatility risk. Size, book-to-market, momentum, and liquidity effects cannot account for either the low average returns earned by stocks with high exposure to systematic volatility risk or for the low average returns of stocks with high idiosyncratic volatility"--National Bureau of Economic Research web site.

Download or read book Volatility of Volatility Expected Stock Return and Variance Risk Premium written by Ruoyang Wang and published by . This book was released on 2015 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theory suggests a relationship between both volatility of volatility, variance risk premium, and the equity risk premium. We empirically investigate the relationship between volatility of volatility and the equity risk premium, and the relationship between the variance risk premium and the equity risk premium. We find that volatility of volatility alone explains 5 to 10% of the total variation of equity risk premium, and together with VIX data, it explains more than 20% of the total variation of equity premium. We fail to find a significant relationship between volatility of volatility and the variance risk premium.We use six measures of volatility of volatility based on non-parametric models, a GARCH model and VVIX data.

Download or read book The Information Content of Implied Volatilities and Model Free Volatility Expectations written by Stephen J. Taylor and published by . This book was released on 2008 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: The volatility information content of stock options for individual firms is measured using option prices for 149 U.S. firms during the period from January 1996 to December 1999. Volatility forecasts defined by historical stock returns, at-the-money (ATM) implied volatilities and model-free (MF) volatility expectations are compared for each firm. The recently developed model-free volatility expectation incorporates information across all strike prices, and it does not require the specification of an option pricing model.Our analysis of ARCH models shows that, for one-day-ahead estimation, historical estimates of conditional variances outperform both the ATM and the MF volatility estimates extracted from option prices for more than one-third of the firms. This result contrasts with the consensus about the informational efficiency of options written on stock indices; several recent studies find that option prices are more informative than daily stock returns when estimating and predicting index volatility. However, for the firms with the most actively traded options, we do find that the option forecasts are nearly always more informative than historical stock returns. When the prediction horizon extends until the expiry date of the options, our regression results show that the option forecasts are more informative than forecasts defined by historical returns for a substantial majority (86%) of the firms. Although the model-free (MF) volatility expectation is theoretically more appealing than alternative volatility estimates and has been demonstrated to be the most accurate predictor of realized volatility by Jiang and Tian (2005) for the Samp;P 500 index, the results for our firms show that the MF expectation only outperforms both the ATM implied volatility and the historical volatility for about one-third of the firms. The firms for which the MF expectation is best are not associated with a relatively high level of trading in away-from-the-money options.

Download or read book The Econometric Analysis of Models with Risk Terms written by A. R. Pagan and published by London : Centre for Decision Sciences and Econometrics, University of Western Ontario. This book was released on 1986 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Stock Returns and Expected Business Conditions written by Sean D. Campbell and published by . This book was released on 2005 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: "We explore the macro/finance interface in the context of equity markets. In particular, using half a century of Livingston expected business conditions data we characterize directly the impact of expected business conditions on expected excess stock returns. Expected business conditions consistently affect expected excess returns in a statistically and economically significant counter-cyclical fashion: depressed expected business conditions are associated with high expected excess returns. Moreover, inclusion of expected business conditions in otherwisestandard predictive return regressions substantially reduces the explanatory power of the conventional financial predictors, including the dividend yield, default premium, and term premium, while simultaneously increasing R-squared. Expected business conditions retain predictive power even after controlling for an important and recently introduced non-financial predictor, the generalized consumption/wealth ratio, which accords with the view that expected business conditions play a role in asset pricing different from and complementary to that of the consumption/wealth ratio. We argue that time-varying expected business conditions likely capture time-varying risk, while time-varying consumption/wealth may capture time-varying risk aversion"--National Bureau of Economic Research web site

Download or read book Regime Shifts and Changing Volatility in Stock Returns written by Pietro Veronesi and published by . This book was released on 1999 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: I present an intertemporal asset pricing model of learning to explain the GARCH behavior of stock returns and the intertemporal variation of expected returns. I assume that dividends follow a diffusion process whose drift rate shifts between two unobservable states at random times. I first show that the asset price is increasing and convex in investors' posterior probability of the good state. I then characterize the changes in asset price sensitivity to news, return volatility and expected returns as function of investors' level of uncertainty over the state of the economy.

Download or read book Stock Market Volatility and the Great Moderation written by Sean D. Campbell and published by . This book was released on 2005 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Asset Price Dynamics Volatility and Prediction written by Stephen J. Taylor and published by Princeton University Press. This book was released on 2011-02-11 with total page 544 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book shows how current and recent market prices convey information about the probability distributions that govern future prices. Moving beyond purely theoretical models, Stephen Taylor applies methods supported by empirical research of equity and foreign exchange markets to show how daily and more frequent asset prices, and the prices of option contracts, can be used to construct and assess predictions about future prices, their volatility, and their probability distributions. Stephen Taylor provides a comprehensive introduction to the dynamic behavior of asset prices, relying on finance theory and statistical evidence. He uses stochastic processes to define mathematical models for price dynamics, but with less mathematics than in alternative texts. The key topics covered include random walk tests, trading rules, ARCH models, stochastic volatility models, high-frequency datasets, and the information that option prices imply about volatility and distributions. Asset Price Dynamics, Volatility, and Prediction is ideal for students of economics, finance, and mathematics who are studying financial econometrics, and will enable researchers to identify and apply appropriate models and methods. It will likewise be a valuable resource for quantitative analysts, fund managers, risk managers, and investors who seek realistic expectations about future asset prices and the risks to which they are exposed.

Download or read book Forward Return Expectations written by Mihir Gandhi and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This note is part of Quality testing.