Essays On Return Predictability And Volatility Estimation
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Essays On Return Predictability And Volatility Estimation
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Author : Yuzhao Zhang
language : en
Publisher:
Release Date : 2008
Essays On Return Predictability And Volatility Estimation written by Yuzhao Zhang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Investments categories.
Essays On The Predictability And Volatility Of Asset Returns
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Author : Stefan A. Jacewitz
language : en
Publisher:
Release Date : 2010
Essays On The Predictability And Volatility Of Asset Returns written by Stefan A. Jacewitz and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
This dissertation collects two papers regarding the econometric and economic theory and testing of the predictability of asset returns. It is widely accepted that stock returns are not only predictable but highly so. This belief is due to an abundance of existing empirical literature finding often overwhelming evidence in favor of predictability. The common regressors used to test predictability (e.g., the dividend-price ratio for stock returns) are very persistent and their innovations are highly correlated with returns. Persistence when combined with a correlation between innovations in the regressor and asset returns can cause substantial over-rejection of a true null hypothesis. This result is both well documented and well known. On the other hand, stochastic volatility is both broadly accepted as a part of return time series and largely ignored by the existing econometric literature on the predictability of returns. The severe effect that stochastic volatility can have on standard tests are demonstrated here. These deleterious effects render standard tests invalid. However, this problem can be easily corrected using a simple change of chronometer. When a return time series is read in the usual way, at regular intervals of time (e.g., daily observations), then the distribution of returns is highly non-normal and displays marked time heterogeneity. If the return time series is, instead, read according to a clock based on regular intervals of volatility, then returns will be independent and identically normally distributed. This powerful result is utilized in a unique way in each chapter of this dissertation. This time-deformation technique is combined with the Cauchy t-test and the newly introduced martingale estimation technique. This dissertation finds no evidence of predictability in stock returns. Moreover, using martingale estimation, the cause of the Forward Premium Anomaly may be more easily discerned.
Three Essays On Stock Market Volatility
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Author : Chengbo Fu
language : en
Publisher:
Release Date : 2019
Three Essays On Stock Market Volatility written by Chengbo Fu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This dissertation consists of three essays on stock market volatility. In the first essay, we show that investors will have the information in the idiosyncratic volatility spread when using two different models to estimate idiosyncratic volatility. In a theoretical framework, we show that idiosyncratic volatility spread is related to the change in beta and the new betas from the extra factors between two different factor models. Empirically, we find that idiosyncratic volatility spread predicts the cross section of stock returns. The negative spread-return relation is independent from the relation between idiosyncratic volatility and stock returns. The result is driven by the change in beta component and the new beta component of the spread. The spread-relation is also robust when investors estimate the spread using a conditional model or EGARCH method. In the second essay, the variance of stock returns is decomposed based on a conditional Fama-French three-factor model instead of its unconditional counterpart. Using time-varying alpha and betas in this model, it is evident that four additional risk terms must be considered. They include the variance of alpha, the variance of the interaction between the time-varying component of beta and factors, and two covariance terms. These additional risk terms are components that are included in the idiosyncratic risk estimate using an unconditional model. By investigating the relation between the risk terms and stock returns, we find that only the variance of the time-varying alpha is negatively associated with stock returns. Further tests show that stock returns are not affected by the variance of time-varying beta. These results are consistent with the findings in the literature identifying return predictability from time-varying alpha rather than betas. In the third essay, we employ a two-step estimation method to separate the upside and downside idiosyncratic volatility and examine its relation with future stock returns. We find that idiosyncratic volatility is negatively related to stock returns when the market is up and when it is down. The upside idiosyncratic volatility is not related to stock returns. Our results also suggest that the relation between downside idiosyncratic volatility and future stock returns is negative and significant. It is the downside idiosyncratic volatility that drives the inverse relation between total idiosyncratic volatility and stock returns. The results are consistent with the literature that investor overreact to bad news and underreact to good news.
Three Essays On Stock Market Volatility And Stock Return Predictability
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Author : Shu Yan
language : en
Publisher:
Release Date : 2000
Three Essays On Stock Market Volatility And Stock Return Predictability written by Shu Yan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with Stock exchanges categories.
Essays On The Predictability And Volatility Of Returns In The Stock Market
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Author : Ruojun Wu
language : en
Publisher:
Release Date : 2008
Essays On The Predictability And Volatility Of Returns In The Stock Market written by Ruojun Wu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Bayesian statistical decision theory categories.
This dissertation studies the effect of parameter uncertainty on the return predictability and volatility of the stock market. The first two chapters focus on the decomposition of market volatility, and the third chapter studies the return predictability. When facing imperfect information, the investors tend to form a learning scheme that encompasses both historical data and prior beliefs. In the variance decomposition framework, the introducing of learning directly impacts the way that return forecasts are revised and consequently the relative component of market volatility based on these forecasts, namely the price movements from revision on future discount rates and those from future cash flows. According to the empirical study in Chapter 1, the former is not necessarily the major driving force of market volatility, which provides an alternative view on what moves stock prices. Learning is modeled and estimated by Bayesian method. Chapter 2 follows the topic in Chapter 1 and studies the role of persistent state variables in return decomposition in order to provide more robust inference on variance decomposition. In Chapter 3 we propose to utilize theoretical constraints to help predict market returns when in sample data is very noisy and creates model uncertainty for the investors. The constraints are also incorporated by Bayesian method. We show in the out-of-sample forecast experiment that models with theoretical constraints produce better forecasts.
Essays On Stock Return Predictability And Portfolio Allocation
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Author : Bradley Steele Paye
language : en
Publisher:
Release Date : 2004
Essays On Stock Return Predictability And Portfolio Allocation written by Bradley Steele Paye and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with Asset allocation categories.
Essays On Disaster Risk And Equity Return Predictability
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Author : Shunlin Liang
language : en
Publisher:
Release Date : 2016
Essays On Disaster Risk And Equity Return Predictability written by Shunlin Liang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with Industrial management categories.
This dissertation consists of two essays on disaster risk and equity return predictability. The first essay proposes new measures of firm-level and market level disaster risk from deviation of put-call symmetry, which is free from being contaminated by the asymmetry between option traders and equity investors. Compared with other known measures of disaster risk, the market-level disaster risk measure robustly predicts aggregate market returns, with out-of-sample (R^2=6.86%) for the next twelve months. The cross-sectional analysis shows that firm-level disaster risk also explains variations in expected stock returns. Stocks with high firm-level disaster risk earn an annual four-factor subsequent alpha 8.0% higher than stocks with low firm-level disaster risk. I explore potential mechanisms giving rise to these asset pricing facts. The second essay finds that the investor’s learning of higher moments can account for the time-variation, size, and volatility of equity premium. I estimate the investor’s belief on skewness and kurtosis of consumption and dividend growth, and assume investor’s Bayesian learning about a skew student’s t-distribution with unknown fixed parameters. The predictive regressions show that more negative skewness and higher kurtosis predict higher subsequent market excess returns, which implies the investor’s learning generates the time variation of equity premium although the true distribution is static. The calibrated asset pricing model shows that the investor’s learning also explains the size and volatility of the equity premium observed in the data when the investor has a preference for early resolution of uncertainty.
Essays On Stochastic Volatility And Jumps
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Author : Diep Ngoc Duong
language : en
Publisher:
Release Date : 2013
Essays On Stochastic Volatility And Jumps written by Diep Ngoc Duong and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Econometrics categories.
This dissertation comprises three essays on financial economics and econometrics. The first essay outlines and expands upon further testing results from Bhardwaj, Corradi and Swanson (BCS: 2008) and Corradi and Swanson (2011). In particular, specification tests in the spirit of the conditional Kolmogorov test of Andrews (1997) that rely on block bootstrap resampling methods are first discussed. We then broaden our discussion from single process specification testing to multiple process model selection by discussing how to construct predictive densities and how to compare the accuracy of predictive densities derived from alternative (possibly misspecified) diffusion models. In particular, we generalize simulation steps outlined in Cai and Swanson (2011) to multifactor models where the number of latent variables is larger than three. In the second essay, we begin by discussing important developments in volatility modeling, with a focus on time varying and stochastic volatility as well as the "model free" estimation of volatility via the use of so-called realized volatility, and variants thereof called realized measures. In an empirical investigation, we use realized measures to investigate the role of "small" and large" jumps in the realized variation of stock price returns and show that jumps do matter in the relative contribution to the total variation of the process, when examining individual stock returns, as well as market indices. The third essay examines the predictive content of a variety of realized measures of jump power variations, all formed on the basis of power transformations of instantaneous returns. Our prediction involves estimating members of the linear and nonlinear extended Heterogeneous Autoregressive of the Realized Volatility (HAR-RV) class of models, using S & P 500 futures data as well as stocks in the Dow 30, for the period 1993-2009. Our findings suggest that past "large" jump power variations help less in the prediction of future realized volatility, than past "small" jump power variations. Our empirical findings also suggest that past realized signed jump power variations, which have not previously been examined in this literature, are strongly correlated with future volatility.
Three Essays On Global Stock Markets
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Author : Mengmeng Dong (Professor of finance)
language : en
Publisher:
Release Date : 2018
Three Essays On Global Stock Markets written by Mengmeng Dong (Professor of finance) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with International finance categories.
My dissertation consists of three sole-authored essays that study global stock returns. The first one “Global Anomalies” estimates the aggregated return predictability of 117 U.S. anomalies across 40 countries. These anomaly variables generate substantial return predictability when they are aggregated within the same category as defined in Hou, Xue, and Zhang (2015) using composite measures. Combining all six categories of anomaly variables into one single composite measure, a global hedge portfolio generates an average equal (value)-weighted monthly return of 2.15% (1.20%) with a t-statistic of 9.22 (4.66). These results highlight the importance of using composite measures to summarize the information contained in individual anomaly variables. My dissertation consists of three sole-authored essays that study global stock returns. The first one “Global Anomalies” estimates the aggregated return predictability of 117 U.S. anomalies across 40 countries. These anomaly variables generate substantial return predictability when they are aggregated within the same category as defined in Hou, Xue, and Zhang (2015) using composite measures. Combining all six categories of anomaly variables into one single composite measure, a global hedge portfolio generates an average equal (value)-weighted monthly return of 2.15% (1.20%) with a t-statistic of 9.22 (4.66). These results highlight the importance of using composite measures to summarize the information contained in individual anomaly variables. In the third chapter “The Impact of Price Limits on Stock Volatility and Price Delay: Evidence from China”, I focus on the Chinese stock market and study how market interventions affect price behaviors. To overcome challenge in identification, I first match firms by characteristics and use difference-in-difference methodology to establish causality. Exploring a Special Treatment policy in China, I show that 5-basis-point tightening in daily price limits (from ±10% to ±5%) significantly reduces annualized volatility by 6.5 basis points (t =5.00) yet increases price delay by 63% from the previous year (t =7.40). Trading activity and liquidity significantly decrease under new limits but return increases by an equal-weighted average of 27% (t = 3.22) in 12 months. Evidence suggests that in the long-run price limits are effective in reducing volatility and improving firm value yet causing delayed price discovery and lower liquidity.
Credit Conditions And Stock Return Predictability
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Author : Heungju Park
language : en
Publisher:
Release Date : 2012
Credit Conditions And Stock Return Predictability written by Heungju Park and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
This dissertation examines stock return predictability with aggregate credit conditions. The aggregate credit conditions are empirically measured by credit standards (Standards) derived from the Federal Reserve Board's Senior Loan Officer Opinion Survey on Bank Lending Practices. Using Standards, this study investigates whether the aggregate credit conditions predict the expected returns and volatility of the stock market. The first essay, "Credit Conditions and Expected Stock Returns," analyzes the predictability of U.S. aggregate stock returns using a measure of credit conditions, Standards. The analysis reveals that Standards is a strong predictor of stock returns at a business cycle frequency, especially in the post-1990 data period. Empirically the essay demonstrates that a tightening of Standards predicts lower future stock returns. Standards performs well both in-sample and out-of-sample and is robust to a host of consistency checks including a small sample analysis. The second essay, "Credit Conditions and Stock Return Volatility," examines the role played by credit conditions in predicting aggregate stock market return volatility. The essay employs a measure of credit conditions, Standards in the stock return volatility prediction. Using the level and the log of realized volatility as the estimator of the stock return volatility, this study finds that Standards is a strong predictor of U.S. stock return volatility. Overall, the forecasting power of Standards is strongest during tightening credit periods.