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Author: Omid Sabbaghi
Publisher:
ISBN:
Category :
Languages : en
Pages :
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In light of the global financial crisis of 2008, this study provides an empirical investigation of the asymmetric volatility - trading volume relationship. Using national equity indices, this study conducts an EGARCH analysis for the Group of Five, or G5, countries. The empirical evidence suggests that trading volume is an important variable in explaining conditional volatility. Consistent with recent research, it is found that the presence of trading volume does not lead volatility persistence levels to decrease. In addition, our results suggest that trading volume captures a significant fraction of asymmetric volatility effects during the recent financial crisis.
Author: Omid Sabbaghi
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In light of the global financial crisis of 2008, this study provides an empirical investigation of the asymmetric volatility - trading volume relationship. Using national equity indices, this study conducts an EGARCH analysis for the Group of Five, or G5, countries. The empirical evidence suggests that trading volume is an important variable in explaining conditional volatility. Consistent with recent research, it is found that the presence of trading volume does not lead volatility persistence levels to decrease. In addition, our results suggest that trading volume captures a significant fraction of asymmetric volatility effects during the recent financial crisis.
Author: Pramod Kumar Naik
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Book Description
The objective of this article is to investigate the volatility asymmetry, volatility-volume relationship by considering trading volume as a mixing variable, and the risk-return relationship in the Indian stock market. Daily data from January 2, 1997 to May 30, 2013 for S&P CNX Nifty are used for the empirical analysis. First, we employ GARCH, EGARCH and GJR-GARCH models to examine the volatility pattern in the stock market. Second, both contemporaneous and lagged trading volumes are augmented in the volatility model to empirically verify the validity of Mixture of Distribution Hypothesis (MDH) and Sequential Information Arrival Hypothesis (SIAH). The level of volatility persistence also compared. Finally, GARCH in mean extension has been tried to investigate whether the risk-return trade-off exist in the market. The findings show significant volatility asymmetry supporting the leverage effect; provide supports to MDH but the volatility shocks are found to be highly persistent even after incorporating trading volume. The study also finds evidence of no significant relationship between risk and return. The implication of the findings may be applicable to traders, speculator as well as the financial decision makers and practitioners as the trading volume reflects the information about market expectation.
Author: Saikat Nandi
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 42
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Author: Ayesha Rawoo
Publisher: LAP Lambert Academic Publishing
ISBN: 9783845438023
Category :
Languages : en
Pages : 64
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Knowledge of volatility is of crucial importance in many areas. The Stock Market of Mauritius did not remain untouched. This paper explores the relationship between trading volume, volatility and leverage in the Stock Market of Mauritius. In contrast to other studies which examine the SEMDEX or the SEM by sector, we examine the relationship for 35 listed stocks on the SEM. Daily return, volume and the SEMDEX is used for the period 2005 to 2009. We also emphasize on the impact of trading volume. The analysis shows that there exist substantial ARCH effect and volatility shocks are quite persistent in the market. The impact of both recent and old news can be found. The study also finds evidence of leverage and asymmetric effect on the Stock Market. Consistent with the results of Lamoureux and Lastrapes (1990), our results shows that the persistence of volatility decreases after volume is included in the model.
Author: Antony Jackson
Publisher:
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Category :
Languages : en
Pages :
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In dealership markets, asymmetric information feeds through to higher transaction costs as dealers adjust their bid-ask spreads to compensate for anticipated losses. In this paper, we show that the presence of asymmetric information can also provide a positive externality to those market participants who operate in multiple markets-portfolio managers. Specifically, insiders lower the estimation errors of portfolio selection methods, thus improving asset allocation. We develop multiple artificial markets, in which portfolio managers trade alongside informed and uniformed speculators, and we contrast the performance of 'volatility timing' -- a method that relies on efficient price discovery -- with that of 'naive diversification'. Volatility timing is shown to consistently outperform naive diversification on a risk-adjusted basis.
Author: Matthijs Lof
Publisher:
ISBN:
Category :
Languages : en
Pages : 72
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Book Description
We propose the Volume Coefficient of Variation (VCV), the ratio of the standard deviation to the mean of trading volume, as a new and easily computable measure of information asymmetry in security markets. We use a simple microstructure model to demonstrate that VCV is strictly increasing in the proportion of informed trade. Empirically, we find that firm-year observations of VCV, computed from daily trading volumes, are correlated with extant firm-level measures of asymmetric information in the cross-section of US stocks. Moreover, VCV increases following exogenous reductions in analyst coverage induced by brokerage closures, and steeply decreases around earnings announcements.
Author: R. Glen Donaldson
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Market expectations of future return volatility play a crucial role in finance; so too does our understanding of the process by which information is incorporated in security prices through the trading process. This paper seeks to learn something about both of these issues by investigating empirically the role of trading volume (a) in predicting the relative informativeness of volatility forecasts produced by ARCH models versus the volatility forecasts derived from option prices, and (b) in improving volatility forecasts produced by ARCH and option models and combinations of models. We find that if trading volume was low during period t-1 then ARCH is much more important than options for forecasting future stock market volatility. Conversely, if volume was high during period t-1, then option-implied volatility is much more important than ARCH for forecasting future volatility. Our findings reveal an important regime-switching role for trading volume and suggest that option markets may be more efficient in high volume states. Results from various tests also uncover possible sources of volume-related nonlinearity in the relationship between past and future return innovations as captured by asymmetric ARCH models.
Author: Wei Quan
Publisher:
ISBN:
Category :
Languages : en
Pages : 125
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Information asymmetry is a critical element in today's financial markets. While asymmetric information related to directional information trading has been extensively studied in the existing literature, there is limited research and evidence on how volatility information trading impacts the options market. This dissertation studies, both theoretically and empirically, the behaviors of volatility information traders in options markets and the implications of their behaviors on information asymmetry and options pricing. I develop a model in which investors can trade multiple option contracts with varying strikes under an asymmetric framework. I show that volatility information trading is more likely to occur in Out of The Money (OTM) options if the overall presence of informed traders is low or if the relative liquidity in OTM options is better than At The Money (ATM) options. Moreover, I show that due to the variation in implicit leverage embedded in the option contracts, the OTM option contract contains a higher volatility information risk than the ATM option contract in equilibrium. In addition, I show that this volatility information risk differential plays a central role in forming the spread structure within an option series with the same underlying asset. Finally, I show that the shape of implied volatility skew (smile) is jointly determined by volatility uncertainty and heterogeneous information risk across the option contracts. I empirically examine the implications of my theory using US equity options data, including two intra-day trade and quote datasets from the Chicago Board Option Exchange (CBOE). I estimate the Volume-Synchronized Probability of Informed Trading (VPIN) variable to measure the volatility information risk in the option market. I show that OTM contracts, on average, have a higher probability of information trading than ATM contracts. I also document that volatility risk explains a considerable proportion of the spread variations in the US equity options market. Finally, I provide evidence that the difference in information asymmetry across strike prices not only helps to explain the dynamics of implied volatility skew but also has a significant impact on the degree to which a change in historical volatility affects the shape of the implied volatility skew.
Author: Theolitsa Demetriou
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Chen He
Publisher:
ISBN:
Category :
Languages : en
Pages : 152
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