New Economics Papers
on Market Microstructure
Issue of 2012‒11‒24
two papers chosen by
Thanos Verousis

  1. Exponential GARCH Modeling with Realized Measures of Volatility By Peter Reinhard Hansen; Zhuo Huang
  2. The dynamic relation between short sellers, option traders, and aggregate returns By Delisle, R. Jared; Lee, Bong Soo; Mauck, Nathan

  1. By: Peter Reinhard Hansen (European University Institute and CREATES); Zhuo Huang (Peking University, National School of Development, China Center for Economic Research)
    Abstract: We introduce the Realized Exponential GARCH model that can utilize multiple realized volatility measures for the modeling of a return series. The model specifies the dynamic properties of both returns and realized measures, and is characterized by a flexible modeling of the dependence between returns and volatility. We apply the model to DJIA stocks and an exchange traded fund that tracks the S&P 500 index and find that specifications with multiple realized measures dominate those that rely on a single realized measure. The empirical analysis suggests some convenient simplifications and highlights the advantages of the new specification.
    Keywords: EGARCH, High Frequency Data, Realized Variance, Leverage Effect.
    JEL: C10 C22 C80
    Date: 2012–10–10
  2. By: Delisle, R. Jared; Lee, Bong Soo; Mauck, Nathan
    Abstract: Contrary to existing event studies around option listing introductions, we show short selling and options trading are complements, rather than substitutes. Further, while a plethora of literature demonstrates both short sellers and option traders are informed traders, relatively little is known about which group is relatively more informed. The results of our dynamic tests indicate that options traders are relatively more informed and that short sellers are backward-looking. Our results support the claim that options markets are non-redundant.
    Keywords: Short selling; options market; informed traders
    JEL: G14 G12 G10
    Date: 2012–11–10

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