Dynamic Equilibrium and Volatility in Financial Asset Markets PDF Download
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Author: Yacine Aït-Sahalia
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 34
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Book Description
This paper develops and estimates a continuous-time model of a financial market where investors' trading strategies and the specialist's rule of price adjustments are the best response to each other. We examine how far modeling market microstructure in a purely rational framework can go in explaining alleged asset pricing ànomalies.' The model produces some major findings of the empirical literature: excess volatility of the market price compared to the asset's fundamental value, serially correlated volatility, contemporaneous volume-volatility correlation, and excess kurtosis of price changes. We implement a nonlinear filter to estimate the unobservable fundamental value, and avoid the discretization bias by computing the exact conditional moments of the price and volume processes over time intervals of any length.
Author: Yacine Aït-Sahalia
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 34
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Book Description
This paper develops and estimates a continuous-time model of a financial market where investors' trading strategies and the specialist's rule of price adjustments are the best response to each other. We examine how far modeling market microstructure in a purely rational framework can go in explaining alleged asset pricing ànomalies.' The model produces some major findings of the empirical literature: excess volatility of the market price compared to the asset's fundamental value, serially correlated volatility, contemporaneous volume-volatility correlation, and excess kurtosis of price changes. We implement a nonlinear filter to estimate the unobservable fundamental value, and avoid the discretization bias by computing the exact conditional moments of the price and volume processes over time intervals of any length.
Author: Yacine Ait-Sahalia
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper develops and estimates a continuous-time model of a financial market where investors' trading strategies and the market maker's rule of price adjustments are best response to each other. There exists an equilibrium where the market maker finds it optimal to add volatility to the price s/he posts compared to the fundamental value of the asset. The model produces in a single and simple framework the two major findings of the empirical price-volume literature: serially correlated volatility and contemporaneous volume-volatility correlation. The fundamental price at every instant can be estimated based on the path of the actual market price, as well as transaction volume, up to that time. Nonlinear filters are derived to address the unobservability of the fundamental price.
Author: Willi Semmler
Publisher: Springer Science & Business Media
ISBN: 3642206808
Category : Business & Economics
Languages : en
Pages : 327
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Book Description
The financial market melt-down of the years 2007-2009 has posed great challenges for studies on financial economics. This financial economics text focuses on the dynamic interaction of financial markets and economic activity. The financial market to be studied here encompasses the money and bond market, credit market, stock market and foreign exchange market; economic activity includes the actions and interactions of firms, banks, households, governments and countries. The book shows how economic activity affects asset prices and the financial market, and how asset prices and financial market volatility and crises impact economic activity. The book offers extensive coverage of new and advanced topics in financial economics such as the term structure of interest rates, credit derivatives and credit risk, domestic and international portfolio theory, multi-agent and evolutionary approaches, capital asset pricing beyond consumption-based models, and dynamic portfolio decisions. Moreover a completely new section of the book is dedicated to the recent financial market meltdown of the years 2007-2009. Emphasis is placed on empirical evidence relating to episodes of financial instability and financial crises in the U.S. and in Latin American, Asian and Euro-area countries. Overall, the book explains what researchers and practitioners in the financial sector need to know about the financial-real interaction, and what practitioners and policy makers need to know about the financial market.
Author: Yacine Aït-Sahalia
Publisher:
ISBN:
Category : Capital market
Languages : en
Pages : 34
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Book Description
Author: Thorsten Hens
Publisher: Elsevier
ISBN: 0080921434
Category : Business & Economics
Languages : en
Pages : 607
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Book Description
The models of portfolio selection and asset price dynamics in this volume seek to explain the market dynamics of asset prices. Presenting a range of analytical, empirical, and numerical techniques as well as several different modeling approaches, the authors depict the state of debate on the market selection hypothesis. By explicitly assuming the heterogeneity of investors, they present models that are descriptive and normative as well, making the volume useful for both finance theorists and financial practitioners. Explains the market dynamics of asset prices, offering insights about asset management approaches Assumes a heterogeneity of investors that yields descriptive and normative models of portfolio selections and asset pricing dynamics
Author: Abraham Lioui
Publisher: Springer Science & Business Media
ISBN: 038724106X
Category : Business & Economics
Languages : en
Pages : 268
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Book Description
This book is an advanced text on the theory of forward and futures markets which aims at providing readers with a comprehensive knowledge of how prices are established and evolve in time, what optimal strategies one can expect the participants to follow, whether they pertain to arbitrage, speculation or hedging, what characterizes such markets and what major theoretical and practical differences distinguish futures from forward contracts. It should be of interest to students (MBAs majoring in finance with quantitative skills and PhDs in finance and financial economics), academics (both theoreticians and empiricists), practitioners, and regulators. Standard textbooks dealing with forward and futures markets generally focus on the description of the contracts, institutional details, and the effective (as opposed to theoretically optimal) use of these instruments by practitioners. The theoretical analysis is often reduced to the (undoubtedly important) cash-and-carry relationship and the computation of the simple, static, minimum variance hedge ratio. This book proposes an alternative approach of these markets from the perspective of dynamic asset allocation and asset pricing theory within an inter-temporal framework that is in line with what has been done many years ago for options markets.
Author: Robert A. Schwartz
Publisher: Springer Science & Business Media
ISBN: 1441914749
Category : Business & Economics
Languages : en
Pages : 152
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Book Description
Volatility is very much with us in today's equity markets. Day-to-day price swings are often large and intra-day volatility elevated, especially at market openings and closings. What explains this? What does this say about the quality of our markets? Can short-period volatility be controlled by better market design and a more effective use of electronic technology? Featuring insights from an international array of prominent academics, financial markets experts, policymakers and journalists, the book addresses these and other questions concerning this timely topic. In so doing, we seek deeper knowledge of the dynamic process of price formation, and of the market structure and regulatory environment within which our markets function. The Zicklin School of Business Financial Markets Series presents the insights emerging from a sequence of conferences hosted by the Zicklin School at Baruch College for industry professionals, regulators, and scholars. Much more than historical documents, the transcripts from the conferences are edited for clarity, perspective and context; material and comments from subsequent interviews with the panelists and speakers are integrated for a complete thematic presentation. Each book is focused on a well delineated topic, but all deliver broader insights into the quality and efficiency of the U.S. equity markets and the dynamic forces changing them.
Author: Ron Johannes
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 42
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Book Description
Author: Willi Semmler
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 200
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Book Description
The book studies the interaction of the financial market, economic activity and the macroeconomy from a dynamic perspective. The financial market to be studied here encompasses the money and bond market, credit market, stock market and foreign exchange market. Economic activity is described by the activity of firms, banks, households, governments and countries. The book shows how economic activity affects asset prices and the financial market and how asset prices and financial market volatility feed back to economic activity. The focus in this book is on theories, dynamic models and empirical evidence. Empirical applications relate to episodes of financial instability and financial crises of the U.S., Latin American, Asian as well as Euro-area countries. The book is not only useful for researchers and practitioners in the field of financial engineering, but is also very useful for researchers and practitioners in economics.
Author: Georgy Chabakauri
Publisher:
ISBN:
Category :
Languages : en
Pages : 51
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Book Description
We evaluate the impact of portfolio constraints on financial markets in a dynamic equilibrium pure exchange economy with one consumption good and heterogeneous investors. Despite numerous applications, portfolio constraints are notoriously difficult to incorporate into dynamic equilibrium analysis unless constrained investors are assumed to have logarithmic preferences. Our solution method yields new insights on the impact of constraints on stock prices without relying on this assumption. We compute the equilibrium when both investors have (identical for simplicity) CRRA preferences, one of them is unconstrained while the other faces an upper bound constraint on the proportion of wealth invested in stocks. We show that tighter constraints lead to higher price-dividend ratios and lower stock-return volatilities when the intertemporal elasticity of substitution (IES) is less than one, and lower price-dividend ratios and higher volatilities when IES is greater than one. Moreover, in the latter case the model generates countercyclical market prices of risk and stock return volatilities, procyclical price-dividend ratios, excess volatility and other patterns consistent with empirical findings. Finally, the baseline analysis is extended to study the impact of various portfolio constraints when investors disagree on mean dividend growth rates. In particular, we explicitly characterize the equilibrium in the unconstrained benchmark economy as well as in the economy with unconstrained pessimist and optimist facing no-borrowing constraint.
