nep-fmk New Economics Papers
on Financial Markets
Issue of 2018‒01‒22
five papers chosen by

  1. Distributions of Historic Market Data - Stock Returns By Zhiyuan Liu; M. Dashti Moghaddam; R. A. Serota
  2. International Stock Return Predictability: Evidence from New Statistical Tests By Amélie Charles; Olivier Darné; Jae Kim
  3. Implications of High-Frequency Trading for Security Markets By Linton, O.; Mahmoodzadeh, S.
  4. Valuation of equity warrants for uncertain financial market By Foad Shokrollahi
  5. A Dynamic Correlation Analysis of Financial Contagion: Evidence from the Eurozone Stock Markets By Trabelsi, Mohamed Ali; Hmida, Salma

  1. By: Zhiyuan Liu; M. Dashti Moghaddam; R. A. Serota
    Abstract: We show that the moments of the distribution of historic stock returns are in excellent agreement with the Heston model and not with the multiplicative model, which predicts power-law tails of volatility and stock returns. We also show that the realized variance of returns is a linear function of the number of days over which the returns are calculated. The slope is determined by the mean value of the variance (squared volatility) in the mean-reverting stochastic volatility models, such as Heston and multiplicative, independent of stochasticity. The distribution function of stock returns, which rescales with the increase of the number of days of return, is obtained from the steady-state variance distribution function using the product distribution with the normal distribution.
    Date: 2017–11
  2. By: Amélie Charles (Audencia Recherche - Audencia Business School); Olivier Darné (LEMNA - Laboratoire d'Economie et de Management de Nantes-Atlantique - UN - Université de Nantes); Jae Kim (La Trobe University [Melbourne])
    Abstract: We investigate whether stock returns of international markets are predictable from a range of fundamentals including key financial ratios (dividend-price ratio, dividend-yield, earnings-price ratio, dividend-payout ratio), technical indicators (price pressure , change in volume), and short-term interest rates. We adopt two new alternative testing and estimation methods: the improved augmented regression method and wild bootstrapping of predictive model based on a restricted VAR form. Both
    Date: 2017–10
  3. By: Linton, O.; Mahmoodzadeh, S.
    Abstract: High frequency trading (HFT) has grown substantially in recent years, due to fast-paced technological developments and their rapid uptake, particularly in equity markets. This paper investigates how HFT could evolve and, by developing a robust understanding of its effects, to identify potential risks and opportunities that it could present in terms of financial stability and other market outcomes such as volatility, liquidity, price efficiency and price discovery. Despite commonly held negative perceptions, the available evidence indicates that HFT and algorithmic trading (AT) may have several beneficial effects on markets. However, they may cause instabilities in financial markets in specific circumstances. Carefully chosen regulatory measures are needed to address concerns in the shorter term. However, further work is needed to inform policies in the longer term, particularly in view of likely uncertainties and lack of data. This will be vital to support evidence-based regulation in this controversial and rapidly evolving field.
    Date: 2018–01–12
  4. By: Foad Shokrollahi
    Abstract: In this paper, within the framework of uncertainty theory, the valuation of equity warrants is investigated. Different from the methods of probability theory, the equity warrants pricing problem is solved by using the method of uncertain calculus. Based on the assumption that the firm price follows an uncertain differential equation, the equity warrants pricing formula is obtained for uncertain stock model.
    Date: 2017–11
  5. By: Trabelsi, Mohamed Ali; Hmida, Salma
    Abstract: The contagion generated by the US subprime crisis and the European sovereign debt crisis that hit the Eurozone stock markets is still a highly debated subject. In this paper, we try to determine whether there are contagion effects across the Greek stock market and the Belgian, French, Portuguese, Irish, Italian and Spanish stock markets during both crises periods. To this end, we used a bivariate DCC-GARCH model to measure the extent of dynamic correlations between stock returns of our sample. Our results point to the presence of a contagion effect between all market pairs during the subprime crisis and between the Greek and Portuguese stock markets during the European sovereign debt crisis. On the other hand, our results indicate that credit ratings revisions have a relatively limited effect on the dynamic correlations of the Eurozone stock markets.
    Keywords: Financial contagion; European debt crisis; Dynamic conditional correlations
    JEL: C22 G01 G15
    Date: 2017

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