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on Market Microstructure |
| By: | David E. Allen (School of Accounting, Finance and Economics Edith Cowan University, Australia.); Michael McAleer (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute, The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of Economic Research, Kyoto University.); Marcel Scharth (Post Doctoral Fellow, Australian School of Business, University of New South Wales) |
| Abstract: | In this paper we document that realized variation measures constructed from high-frequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this inpredictability brings considerably more uncertainty to the empirically relevant ex ante distribution of returns. Explicitly modeling this volatility risk is fundamental. We propose a dually asymmetric realized volatility model, which incorporates the fact that realized volatility series are systematically more volatile in high volatility periods. Returns in this framework display time varying volatility, skewness and kurtosis. We provide a detailed account of the empirical advantages of the model using data on the S&P 500 index and eight other indexes and stocks. |
| Keywords: | Realized volatility; Volatility of volatility; Volatility risk; Value-at-risk; Forecasting; Conditional heteroskedasticity. |
| JEL: | C58 G12 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1416&r=mst |
| By: | Leonidas Sandoval Junior |
| Abstract: | We follow the main stocks belonging to the New York Stock Exchange and to Nasdaq from 2003 to 2012, through years of normality and of crisis, and study the dynamics of networks built on two measures expressing relations between those stocks: correlation, which is symmetric and measures how similar two stocks behave, and Transfer Entropy, which is non-symmetric and measures the influence of the time series of one stock onto another in terms of the information that the time series of one stock transmits to the time series of another stock. The two measures are used in the creation of two networks that evolve in time, revealing how the relations between stocks and industrial sectors changed in times of crisis. The two networks are also used in conjunction with a dynamic model of the spreading of volatility in order to detect which are the stocks that are most likely to spread crises, according to the model. This information may be used in the building of policies aiming to reduce the effect of financial crises. |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1408.1728&r=mst |
| By: | Alain François-Heude; Ouidad Yousfi |
| Abstract: | The current paper shows that CAC 40 index options (namely PXA) display some illiquidity problems. We examine daily data on PXA trades between May 2005 and August 2012. The study evidences the presence of a considerable number of outstanding PXA contracts: most of these options are long-term maturity options and are deep in or deep out the money options. To overcome the highlighted liquidity issues, we propose first to test the generaliza- tion of Gray and Whaley (1999) reset option introduced by François-Heude and Yousfi (2013). The main idea is to reset the strike price PXA option to a new strike price given by the CAC 40 value at a pre-agreed point of time. Then we provide some additional measures regarding the number the PXA strike price series and the PXA expiration dates. Finally, we test them on PXA market. Results show a significant and positive effect on the PXA liquidity. |
| Keywords: | strike reset, option, PXA, liquidity, reset option. |
| JEL: | G12 G13 |
| Date: | 2014–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-445&r=mst |