Dissertations / Theses: 'Volatility predictability'

1

Zhang, Yuzhao. "Essays on return predictability and volatility estimation." Diss., Restricted to subscribing institutions, 2008. http://proquest.umi.com/pqdweb?did=1666139151&sid=3&Fmt=2&clientId=1564&RQT=309&VName=PQD.

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Kasch-Haroutounian, Maria. "Transition equity markets of Central Europe : volatility, predictability, integration." Thesis, City University London, 2000. http://openaccess.city.ac.uk/8058/.

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The objective of this thesis is to add evidence from the transition equity markets of Central Europe to the econometric modelling of financial time series by addressing the issues of volatility, predictability and international asset pricing in these markets. In Chapter Two we start from an overview of the transition stock markets by presenting their historical background, basic regulations, statistics, and stock market indices. Chapter Three focuses on the modelling of univariate and multivariate volatility in transition equity markets. Our sample has all the previously documented characteristics of the unconditional distribution of stock returns normally used to justify the use of the GARCH class of the models of conditional volatility. Strong GARCH effects are apparent in all series examined. The estimates of asymmetric models of conditional volatility show rather weak evidence of asymmetries in the markets. The results of the multivariate specifications of volatility have implication for understanding the pattern of information flow between the markets. The constant correlation specification indicates significant conditional correlation between three pairs of countries: Hungary and Poland, Hungary and Czech Republic, and Poland and Czech Republic. The BEKK model of multivariate volatility shows evidence of return volatility spillovers from Hungary to Poland, but no volatility spillover effects are found in the opposite direction. Chapter Four examines the linear and nonlinear predictability of transition equity returns with simple technical trading rules. The application of the moving average trading rules to the data reveals that technical analysis helps to predict stock price changes. Firstly buy signals consistently generate higher returns than sell signals; secondly the returns following buy signals are less volatile than returns following sell signals. The application of the bootstrap methodology to check whether three popular null models of stock returns with linear conditional mean specification replicate the trading rule profits indicates that returns obtained from trading rules signals are not likely to be generated by these models. Comparison of the out-of-sample forecast performance of linear and nonlinear (feedforward networks) conditional mean estimators with past trading signals in the conditional mean equation indicates substantial forecast improvements of the feedforward network regression. Chapter Five addresses the issue of integration of the transition equity markets into the global capital market by testing pricing restrictions of the international CAPM simultaneously for four national equity markets: two developed markets (U.S. and Germany) and two new transition markets (Hungary and Poland). Methodologically, we extend the BEKK multivariate GARCH specification to accommodate GARCH-M effects, and propose an alternative specification of the conditional CAPM, which allows return volatility transmissions between the markets in the system. The results reveal that the world price of covariance risk is positive and equal across the markets. This is consistent with the international CAPM and supports the hypothesis of integration of the transition markets into the global market. However, our further results indicate individual significance of the Hungarian idiosyncratic risk, pointing to some level of segmentation of the Hungarian market. Moreover, the introduction of world-wide information variables into the system reveals that some variation in the excess national returns is still predictable after accounting for the measure of market-wide risk.

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Letra, Ivo José Santos. "What drives cryptocurrency value? A volatility and predictability analysis." Master's thesis, Instituto Superior de Economia e Gestão, 2016. http://hdl.handle.net/10400.5/12556.

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Mestrado em Decisão Económica e Empresarial
Esta tese descreve como as moedas digitais se tornaram no novo fenómeno nos mercados financeiros e como a mais popular das moedas digitais - Bitcoin - originou perguntas cruciais sobre o seu valor e como ao mesmo tempo as suas séries financeiras criaram uma oportunidade para estudar várias dinâmicas sobre o preço, que tipicamente estão fortemente ligadas a movimentos especulativos e sem análise fundamental. Com a utilização de um modelo GARCH(1,1) sobre dados diários e centrando-se em dois fenómenos recentes - moedas digitais, nomeadamente Bitcoin e conteúdo web oriundo do Google Trends, Wikipedia e Twitter - verificámos que os retornos da Bitcoin são fortemente impulsionados pela sua popularidade. Assim, analisando este relacionamento e modelando a existência de variâncias condicionais heterocedásticas demonstramos que o conteúdo proveniente de motores de busca e redes sociais e a flutuação nos preços Bitcoin estão intensamente ligados e que esta relação exibe alguma previsibilidade.
This thesis describes how digital currencies have rose as a new interesting phenomenon in the financial markets and how the most popular of the digital currencies - BitCoin - have risen crucial questions about their exchange rates and also represents a field to study the dynamics of this market, which is strongly connected with speculative traders with no fundamentals as there is no fundamental value to the currency. Using a GARCH(1,1) model on daily data and focusing on two emerging phenomena of recent years - digital currencies, particularly Bitcoin, and web content provided by search queries on Google Trends and Wikipedia and tweets from Twitter - we discover that Bitcoin returns are driven primarily by its popularity. Thus, we analyze their relationship, the existence of volatility clustering and demonstrate that the web content and Bitcoin prices are connected and they exhibit some predictable power.

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Wu, Ruojun. "Essays on the predictability and volatility of returns in the stock market." Diss., Connect to a 24 p. preview or request complete full text in PDF format. Access restricted to UC campuses, 2008. http://wwwlib.umi.com/cr/ucsd/fullcit?p3316421.

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Thesis (Ph. D.)--University of California, San Diego, 2008.
Title from first page of PDF file (viewed Sept. 4, 2008). Available via ProQuest Digital Dissertations. Vita. Includes bibliographical references (p. 127-132).

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Erickson, Matthew James, and Matthew James Erickson. "The Relation Between Firm Dividend Policy and the Predictability of Cash Effective Tax Rates." Diss., The University of Arizona, 2017. http://hdl.handle.net/10150/624547.

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I examine the relation between a firm's dividend policy and its strategic tax decisions. I posit that the capital market pressure associated with paying a dividend leads dividend-paying firms to seek predictable cash flows. I specifically focus on the volatility of a firm's cash effective tax rate (ETR) due to the observability, large size, variability, and periodicity of cash tax payments. Consistent with dividend payments altering a firm's strategic tax preferences, I find that firms that pay a higher dividend exhibit more predictable cash ETRs. Further, I find that the predictability of a dividend-initiating (eliminating) firm's cash ETR subsequently increases (decreases). Additionally, I find that, consistent with prior research suggesting that financially constrained firms "borrow" cash from their tax account, financial constraint moderates the positive relation between the predictability of a firm's cash ETR and its dividend payments. Importantly, my results hold for firms initiating a dividend in response to the exogenous shock of the Bush tax cuts. Finally, I also examine specific tax strategies dividend-paying firms use to help increase the predictability of their cash tax payments. My results contribute to the academic literature by examining whether, and how, dividend-paying firms alter their strategic tax decisions. Additionally, I contribute to ongoing public policy debates over the value of dividend payments by demonstrating a positive relation between dividend payments and the predictability of a firm's cash tax payments.

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Mohamed, El-Emam A. E. "Analysis of behaviour and predictability of stock returns and volatility on the Egyptian stock exchange." Thesis, University of York, 2005. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.422541.

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Jones, Greg. "The predictability and performance of the market volatility forecast implied by the premiums of FTSE100 index option contracts." Thesis, University of Reading, 1999. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.298751.

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Psaradellis, I. "Essays on predictability & excess profitability of quantitative methods : modelling implied volatility, technical trading, data snooping and market efficiency." Thesis, University of Liverpool, 2017. http://livrepository.liverpool.ac.uk/3012184/.

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Alitab, Dario. "Discrete time models for financial volatility and jumps." Doctoral thesis, Scuola Normale Superiore, 2017. http://hdl.handle.net/11384/85716.

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Stan, Denis-Emanuel. "News flow and trading activity: A study of investor attention and market predictability." Thesis, Queensland University of Technology, 2020. https://eprints.qut.edu.au/203276/1/Denis-Emanuel_Stan_Thesis.pdf.

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This thesis examines the relationship between investors' attention and movements in financial markets. Providing an explanation to the relationship between investor attention and market returns and return volatility, where attention is measured by Google search volume and two indirect price-based measures, investor attention does not contribute to return predictability however significant links to volatility are found. Furthermore, revisiting the joint volume-volatility relationship seeking to investigate the dynamic links of market volatility, trading volume, and investor attention (measured by Google search and Twitter tweet volume), investor attention provides a somewhat significant link for the rate at which investors seek market information.

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Bozhkov, Stanislav. "Idiosyncratic risk and the cross section of stock returns." Thesis, Brunel University, 2017. http://bura.brunel.ac.uk/handle/2438/16792.

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A key prediction of the Capital Asset Pricing Model (CAPM) is that idiosyncratic risk is not priced by investors because in the absence of frictions it can be fully diversified away. In the presence of constraints on diversification, refinements of the CAPM conclude that the part of idiosyncratic risk that is not diversified should be priced. Recent empirical studies yielded mixed evidence with some studies finding positive correlation between idiosyncratic risk and stock returns, while other studies reported none or even negative correlation. In this thesis we revisit the problem whether idiosyncratic risk is priced by the stock market and what the probable causes for the mixed evidence produced by other studies, using monthly data for the US market covering the period from 1980 until 2013. We find that one-period volatility forecasts are not significantly correlated with stock returns. On the other hand, the mean-reverting unconditional volatility is a robust predictor of returns. Consistent with economic theory, the size of the premium depends on the degree of 'knowledge' of the security among market participants. In particular, the premium for Nasdaq-traded stocks is higher than that for NYSE and Amex stocks. We also find stronger correlation between idiosyncratic risk and returns during recessions, which may suggest interaction of risk premium with decreased risk tolerance or other investment considerations like flight to safety or liquidity requirements. The difference between the correlations between the idiosyncratic volatility estimators used by other studies and the true risk metric - the mean-reverting volatility - is the likely cause for the mixed evidence produced by other studies. Our results are robust with respect to liquidity, momentum, return reversals, unadjusted price, liquidity, credit quality, omitted factors, and hold at daily frequency.

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Watugala, Sumudu Weerakoon. "Essays on interconnected markets." Thesis, University of Oxford, 2015. http://ora.ox.ac.uk/objects/uuid:50c12fb0-a354-40bb-9d07-9174ad1f594a.

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This thesis consists of three essays that explore the dynamics of interconnected markets and examine the relationships between markets, investor behavior, and fundamental characteristics of the firm and the economy. In the first essay, we investigate the role of trade credit links in generating cross-border return predictability between international firms. Using data from 43 countries from 1993 to 2009, we find that firms with high trade credit in producer countries have stock returns that are strongly predictable based on the returns of their associated customer countries. This behavior is especially prevalent among firms with high levels of foreign sales. To better understand this effect we develop an asset pricing model in which firms in different countries are connected by trade credit links. The model offers further predictions about this phenomenon, including stronger predictability during periods of high credit constraints and low uninformed trading volume. We find supportive empirical evidence for these predictions. The second essay investigates the dynamics of commodity futures volatility. I derive the variance decomposition for the futures basis to show how unexpected excess returns result from new information about expected future interest rates, convenience yields, and risk premia. Using data on major commodity futures markets and global bilateral commodity trade, I analyze the extent to which commodity volatility is related to fundamental uncertainty arising from increased emerging market demand and macroeconomic uncertainty, and control for the potential impact of financial frictions introduced by changing market structure and index trading. I find that a higher concentration in the emerging market importers of a commodity is associated with higher futures volatility. Commodity futures volatility is significantly predictable using variables capturing macroeconomic uncertainty. The third essay investigates the differential explanatory power of consumer (importing countries) and producer (exporting countries) risk in explaining the volatility of commodity spot premia and term premia using trade-weighted indices of GDP volatility. Using data for major commodity futures markets, bilateral commodity trade, exchange rates, and GDP for countries trading these commodities, I test hypotheses on the heterogeneous impact of consumer and producer shocks, potentially driven by differences in hedging preferences and investment planning horizons. Producer risk is significant for both short-dated and long-dated maturities, while consumer risk has greater explanatory power for the volatility of the term spread.

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Dias, Shehan Preethike Dilruk. "An enquiry into econometric testing of PPP-sensitivity issues, and a study of interrelations, predictabilty, volatility and nonlinearity of daily asset returns." Thesis, Birkbeck (University of London), 2008. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.497634.

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14

Wu, Guan-Wei, and 吳冠緯. "Low Volatility Anomaly and Its Predictability." Thesis, 2017. http://ndltd.ncl.edu.tw/handle/z45ur4.

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碩士
國立中央大學
財務金融學系
105
Low volatility anomaly began to attract attention in recent years because it violates the positive trade-off relation between risk and return illustrated by the traditional financial theory. Researches also find that low volatility anomaly is an empirical phenomenon observed worldwide. Still others want to come up with possible reasons in order to explain this puzzle. This thesis finds that low volatility anomaly also exists in Taiwan stock market, and aims to discuss the relation between the low volatility portfolio and TAIEX. This thesis finds that using one-month formation period with one-month holding period and four-week formation period with one-week holding period and sorting the companies by idiosyncratic risk demonstrates the strongest low volatility anomaly. This thesis also finds that when the volatility of stock market increases, the low volatility portfolio will have a better performance. Finally, this thesis finds that the performance of the low volatility strategy is related to the volatility of stock market and the performance of market portfolio simultaneously. Indeed, low volatility anomaly can reflect the current safe haven effect of stock market.

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15

Park, Heungju. "Credit Conditions and Stock Return Predictability." Thesis, 2011. http://hdl.handle.net/1969.1/ETD-TAMU-2011-08-9851.

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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.

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Fremunt, Marek. "Predictability of security returns using Twitter sentiment." Master's thesis, 2015. http://www.nusl.cz/ntk/nusl-333503.

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This work concentrates on exploring the influence of social networks to financial markets. We have introduced a novel approach to Twitter sentiment analysis, in which we collect continuous stream of data and analyze it. Our original data set contains over 200 million English written Tweets from the period between July 1, 2014 and October 9, 2014. Twitter sentiment is used as a good representative of investors' mood. On hourly data we investigate how investors are influenced by basic emotions, moods and sentiment in their decision making processes as well as the influence of keywords related to specific securities and FOREX symbols. Particularly, we examine the relationships between Twitter-based variables and returns as well as volatility of several financial instruments on a wide range of data including commodities, currencies and S&P 500 Cash Index. We show that Twitter sentiment influences volatility of securities' returns, tested and shown on both conditional and realized volatility models. We also describe the effect of Twitter sentiment on securities' returns. Moreover, we reveal the influence of basic emotions on investors' decision making processes. Our results suggest that investors are influenced by emotions and moods, especially at longer investment horizons. The impact of emotions at shorter...

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Jacewitz, Stefan A. "Essays on the Predictability and Volatility of Asset Returns." 2009. http://hdl.handle.net/1969.1/ETD-TAMU-2009-08-859.

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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 fi nding 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 e ffect that stochastic volatility can have on standard tests are demonstrated here. These deleterious e ffects 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 nds no evidence of predictability in stock returns. Moreover, using martingale estimation, the cause of the Forward Premium Anomaly may be more easily discerned.

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18

GAO, RUO-GHIAN, and 高若謙. "Earnings Volatility and Earnings Predictability-Consideration of Earnings Volatility Components and Firm Life Cycle." Thesis, 2018. http://ndltd.ncl.edu.tw/handle/fezva9.

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碩士
東吳大學
會計學系
106
Earnings persistence is an important variable in measuring the quality of earnings, and it is also an important variable in valuation. Literature studies show that earnings volatility negatively affects earnings persistence. Therefore, in this study, by the evidence from companies listed on the Taiwan stock exchange in 1991-2016, we further separates the earnings volatility into four earnings volatility components based on income statement structure. The Dickinson(2011) cash flow statement information is used to measure the life cycle of the company, and divide the sample company into five life cycle stages. The empirical results show below: 1. Earnings volatility has a negative impact on predicting the future earnings. 2. The relationship between earnings volatility components and predicting the future earnings is as follows. First, gross profit volatility does not affect the future earnings. Second, R&D expense volatility has a positive relationship when predicting the future earnings. Last, non-operating expense and revenue volatility has a negative relationship with the future earnings. 3. Gross profit volatility and the future earnings prediction have a negative relationship for introduction firms. However, there isn’t any effect on growing firms and mature firms. Nevertheless, it becomes a positive relationship for shake-out firms and decline firms. The relationship between R&D expense volatility and predicting the future earnings, for introduction firms, mature firms, shake-out firms and decline firms, is positive. But there is no influence on growing firms. While non-operating expense and revenue volatility have a negative impact on predicting the future earnings for all firm life cycles stage.

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19

Chen, Hui-Chieh, and 陳慧倢. "Predictability of options’ net buying pressure for returns and volatility." Thesis, 2015. http://ndltd.ncl.edu.tw/handle/15459759155206649449.

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碩士
東海大學
財務金融學系
103
Option-related indicators are often used to predict stock returns and volatility. In contrast to information variables adopted in the related literatures, we predict TAIEX returns and vola-tility with the information content of options’ net buying pressure. Indeed, total net buying pressure used in the literatures has limited predictability, because the direction-trading effect and volatility-trading effect may cancel each other out in the calculation of total net buying pressure. We thus follow Chen and Wang (2015) to decompose total net buying pressure into the direction-trading-motivated net buying pressure (NBPD) and the volatility-trading-motivated net buying pressure (NBPV), and further examine their predictability in stock re-turns and volatility, respectively. Our empirical results show that NBPD of TAIEX options (TXO) has significant predictability in TAIEX returns, regardless of the happening of the 2011 U.S. Debt-Ceiling Crisis. The predicative power even persists up to the leading eight periods. We also find that NBPV of ITM options has predictability in TAIEX volatility after the U.S. Debt-Ceiling Crisis. It indicates that the decomposed net buying pressure contain information in both the future price movement and volatility of TAIEX prices.

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20

Tai, ChungYao, and 戴仲堯. "The Impact of Foreign Institutional Trading on Return Predictability of Volatility Spread." Thesis, 2014. http://ndltd.ncl.edu.tw/handle/51933947752804583049.

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碩士
東海大學
財務金融學系
102
This study seeks the evidence concerning the predictability of volatility spread on future price movements in Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX). We also discuss whether the increase of foreign institutional investors’ activities in the option market enhances the predictability of volatility spread. By adopting the TAIEX option intraday transaction data, we find that volatility spread does have predictability in future TAIEX return, which is similar to the finding in the U.S. market. Furthermore, by adding option/stock ratio of foreign institutions as an information variable to represent the degree that foreign institutional investors participate in option markets, we find the predictability is much more significant and is able to foresee TAIEX return up to three days ahead. Our findings support that volatility spread carries information about future returns of the TAIEX index, and the increase in option trading activities of foreign institutional investors enables to enhance the predictive power of volatility spread. It also indicates information that foreign institutional investors possess is superior to other kinds of investors.

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Chen, Meng-Chien, and 陳孟謙. "The Predictability of Stock Returns Using the Information of Option Volatility Smirk: New evidence." Thesis, 2014. http://ndltd.ncl.edu.tw/handle/81016113350520742464.

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碩士
國立交通大學
財務金融研究所
102
The shape of the volatility smirk has significant cross-sectional predictive power for future equity returns. Future returns are linked to the discrepancy between call and put volatilities of options and to the left side of the volatility skew, calculated as the difference between out-of-the-money and at-the-money puts. In this paper, we sort out the slope of the volatility curve that appears in the previous literature, furthermore we use delta to determine whether option is out of the money or at the money. And analyze the performance of each measure in the different samples time series. Strategies based on several option measures can predict returns and alphas on the underlying stock in various market conditions. The findings herein suggest that information diffuses gradually from the option market to the underlying stock market. It also suggests that informed traders trade in the options market and that the stock market is slow to incorporate information from the options market.

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Hao-ShuKou and 苟顥書. "Using technical rules to enhance the predictability of the standard GARCH model for the volatility of stock indices." Thesis, 2015. http://ndltd.ncl.edu.tw/handle/8776jm.

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碩士
國立成功大學
財務金融研究所
103
The main purpose of this study is to explore whether technical analysis can improve the predictability of Generalized Autoregressive Conditional Heteroscedasticity (GARCH(1,1)) for the volatility of stock index. Four technical analysis categories, filter rule, support and resistance, channel breakout, and moving average, were applied, creating 1,107 rules in total, and the rules were used individually on the realized volatility of stock index to obtain signals. We discuss if the GARCH(1,1)-augmented model with technical analysis signals can provide better predictability for stock index volatility than the benchmark model(GARCH(1,1)). Employing the mean absolute error (MAE) and mean squared error (MSE) as performance measure, we conduct Hsu, Hsu and Yen’s (2014) Step-SPA(k) test to control for the data snooping bias. Dow Jones Industrial Average data from 2008 to 2012 and 1993 to 1992 are used as the sample. Our results showed that analyzing realized volatility signals with technical rules does not lead to a significant improvement in the predictability of the GARCH(1,1) model for volatility of stock indices.

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FAN, YI-YANG, and 范翊揚. "Study of the Low Volatility Anomaly and Its Predictability- From TWSE Corporate Governance Index and Yuanta Taiwan Dividend Plus Perspective." Thesis, 2019. http://ndltd.ncl.edu.tw/handle/65f7h4.

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碩士
國立高雄科技大學
金融系
107
Low volatility anomaly began to attract attention in recent years because it violates the positive trade-off relation between risk and return illustrated by the traditional financial theory. Researches also find that low volatility anomaly is an empirical phenomenon observed worldwide. More importantly, recent research had also proved that low volatility anomaly phenomenon also exists in Taiwan market. This thesis finds that low volatility anomaly also exists in the portfolio of the sharing component stocks of TWSE corporate governance index and Yuanta Taiwan dividend plus ETF. This research uses the sharing component stocks as the low volatility portfolio, aims to discuss the relation between the low volatility portfolio’s payoff and the market risk. This thesis uses weekly, monthly and quarterly period to calculate the payoffs of the low volatility portfolio and the market risk. This thesis finds that when the volatility of stock market increases, the low volatility portfolio will have a better performance. The payoffs of the low volatility portfolio do not have consistent anticipation power on the market risk. Nonetheless, this thesis also finds that the payoffs of the low volatility portfolio can reflect the current market risk especially in the monthly category.

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Xu, Lai. "What About Short Run?" Diss., 2014. http://hdl.handle.net/10161/8712.

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This dissertation explores issues regarding the short-lived temporal variation of the equity risk premium. In the past decade, the equity risk premium puzzle is resolved by many competing consumption-based asset pricing models. However, before \cite{btz:vrp:rfs}, the return predictability as an outcome of such models has limited empirical support in the short-run. Nowadays, there has been a consensus of the literature that the short-run equity return's predictability is intimately linked with the variance risk premium---the difference between options-implied and actual realized variation measures.

In this work, I continue to argue the importance of the short-lived components in the equity risk premium. Specifically, I first provide simulation evidence of the strong return predictability based on the variance risk premium in the U.S. aggregate market, and document new empirical findings in the international setting. Then I attempt to use a structural macro-finance model to guide through the predictability estimation with much more efficiency gain. Finally I decompose the equity risk premium into two short-lived parts --- tail risk and diffusive risk --- and propose a semi-parametric estimation method for each part. The results are arranged in the following order.

Chapter 1 of the dissertation is co-authored with Tim Bollerslev, James Marrone and Hao Zhou. In this chapter, we demonstrate that statistical finite sample biases cannot ``explain'' this apparent predictability in U.S. market based on variance risk premium. Further corroborating the existing evidence of the U.S., we show that country specific regressions for France, Germany, Japan, Switzerland, the Netherlands, Belgium and the U.K. result in quite similar patterns. Defining a ``global'' variance risk premium, we uncover even stronger predictability and almost identical cross-country patterns through the use of panel regressions.

Chapter 2 of the dissertation is co-authored with Tim Bollerslev and Hao Zhou. In this chapter, we examine the joint predictability of return and cash flow within a present value framework, by imposing the implications from a long-run risk model that allow for both time-varying volatility and volatility uncertainty. We provide new evidences that the expected return variation and the variance risk premium positively forecast both short-horizon returns \textit{and} dividend growth rates. We also confirm that dividend yield positively forecasts long-horizon returns, but that it does not help in forecasting dividend growth rates. Our equilibrium-based ``structural'' factor GARCH model permits much more accurate inference than %the reduced form VAR and

univariate regression procedures traditionally employed in the literature. The model also allows for the direct estimation of the underlying economic mechanisms, including a new volatility leverage effect, the persistence of the latent long-run growth component and the two latent volatility factors, as well as the contemporaneous impacts of the underlying ``structural'' shocks.

In Chapter 3 of the dissertation, I develop a new semi-parametric estimation method based on an extended ICAPM dynamic model incorporating jump tails. The model allows for time-varying, asymmetric jump size distributions and a self-exciting jump intensity process while avoiding commonly used but restrictive affine assumptions on the relationship between jump intensity and volatility. The estimated model implies that the average annual jump risk premium is 6.75\%. The model-implied jump risk premium also has strong explanatory power for short-to-medium run aggregate market returns. Empirically, I present new estimates of the model based equity risk premia of so-called "Small-Big", "Value-Growth" and "Winners-Losers" portfolios. Further, I find that they are all time-varying and all crashed in the 2008 financial crisis. Additionally, both the jump and volatility components of equity risk premia are especially important for the "Winners-Losers" portfolio.

Dissertation

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25

Gomes, Ana Sofia Moreira. "Can we anticipate the stock market using the put-call parity? : a study on return predictability." Master's thesis, 2019. http://hdl.handle.net/10400.14/29311.

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Using the deviations from the put-call parity, we investigate the existence of relevant information about the future stock price not yet incorporated in the stock market. In order to capture the extent of the mispricing between pairs of calls and puts’ options, we calculate daily volatility spreads as the weighted average of the difference between implied volatilities. We use the option signals provided by our measure to create stock portfolios, assessing the informational flow between the two markets. We find a strong evidence that relatively expensive calls in respect to puts carry more information about future stock returns than the opposite: the hedge portfolio earns a four-week abnormal return of 31.6 bps. We further extend our research to study the effect of liquidity and informed trading. Our results suggest that the most liquid options are the ones conveying more information about future stock returns. Furthermore, informed trading is only relevant when its probability in the stock market assumes high values. Finally, we show an increase of returns’ predictability in the post-financial crisis period, which contradicts the argument present in literature that this flow would tend to disappear due to the learning process of the market participants. Overall, we provide evidence on return predictability by the incorporation in the stock market of information intrinsic to the deviations from put-call parity.
Através dos desvios da paridade entre opções de compra e de venda, investigamos a existência de informação relevante sobre o preço futuro das ações, não incorporada no mercado de ações. De forma a quantificar o mispricing entre os dois tipos de opção, calculamos spreads de volatilidade definidos como a média ponderada da diferença entre as volatilidades implícitas pela opção de compra e de venda. Os diferentes níveis de indicadores revelados definem a criação de cada portfolio de ações, o que nos permitirá avaliar o fluxo de informação entre os dois mercados. Os resultados mostram que as opções de compra, sobrevalorizadas face às de venda, compreendem mais informação sobre os retornos futuros do mercado de ações do que o inverso: o hedge portfolio obtém um retorno anormal de 31.6 pp, após quatro semanas da sua formação. Numa extensão da análise, estudamos o efeito da liquidez e da existência de trading informado no mercado de ações. Os resultados sugerem que as opções mais líquidas são as que transmitem mais informação futura. Por outro lado, a existência de trading informado apenas se torna relevante quando a sua probabilidade assume valores elevados. Por último, verificamos um aumento na previsibilidade dos retornos no período após a crise financeira, o que não revela a aprendizagem dos participantes como referido na literatura. No geral, encontramos evidência da previsibilidade dos retornos através da incorporação, no mercado de ações, de informação intrínseca aos desvios da paridade entre opções de compra e de venda.

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Dissertations / Theses on the topic 'Volatility predictability'

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