gregoriou (ed.) - stock market volatility (2009)

[...]... CONTENTS 1.1 Introduction 1.2 Speculation and Volatility 1.3 Information, Liquidity, and Volatility 1.4 Derivatives Trading and Volatility 1.5 Stylized Facts of Volatility Modeling 1.6 The Rival Volatility Forecasts 1.7 Volatility Trading 1.8 Conclusion References 3 4 7 10 13 17 18 21 22 1.1 INTRODUCTION Financial markets can move quite dramatically, and stock prices may appear too volatile to be justified... Short Term Capital Management LLC, which he co-founded Vladimir earned a PhD in finance from the University of South Carolina and an MBA from the University of Arkansas He also received a BS with a concentration in international economics from Sumy State University I Modeling Stock Market Volatility CHAPTER 1 An Overview of the Issues Surrounding Stock Market Volatility Elena Kalotychou and Sotiris K... years and are still being studied vigorously (LeRoy and Porter, 1981; Shiller, 1981; Zhong et al., 2003) Volatility as a phenomenon as well as a concept remains central to modern financial markets and academic research The link between volatility and risk has been to some extent elusive, but stock market volatility * The authors thank Gang Zhao and Kjell Horn for excellent research and editorial assistance,... and anyone interested in equity markets about the theories underlying stock market volatility, the historical trends and debates in the field, as well as the empirical findings at the forefront of academic research In what follows, Section 1.2 discusses the link between volatility and speculative action, Section 1.3 looks at the interface among information, volume, and volatility, and Section 1.4 explores... determines the level of disruption in the cash market is the speculators’ (poor) forecasting ability and lack of information (Baumol, 1957; Seiders, 1981).* But from a practical point of view, how do speculators inject excess volatility (if any) in financial markets? Volatility is an inevitable market experience mirroring (1) fundamentals, (2) information, and (3) market expectations Interestingly, these... Australian and world markets is an assistant professor at Istanbul Technical University He holds a BA in economics from Bogazici University, an MA in finance from the University of Paris I Pantheon-Sorbonne, and a PhD in finance from the University of Aix-Marseille III Dr Ekinci worked in a school trading room at CNAM in Paris and gives courses about financial markets at CNAM, University of Aix-Marseille II,... and Section 1.4 explores the impact of derivatives trading on the underlying asset’s volatility Section 1.5 considers some stylized facts related to equity volatility, Section 1.6 compares rival volatility forecasts, and Section 1.7 focuses on volatility trading Section 1.8 concludes the chapter 1.2 SPECULATION AND VOLATILITY Speculators are usually seen with some sort of resentment by the wider community.†... thing In fact, fundamentally justified volatility can form the basis for efficient price discovery, while volatility dependence implies predictability, which is welcomed by traders and medium-term investors The importance of volatility is widespread in the area of financial economics Equilibrium prices, obtained from asset pricing models, are affected by changes in volatility, investment management lies... and editorial board member for , a London, UK–based academic journal, and also editorial board member of the and the He has published twenty-eight books with Chapman-Hall/CRC, John Wiley & Sons, McGraw-Hill, Bloomberg Press, Elsevier ButterworthHeinemann, Palgrave-MacMillan, and Risk books The Contributors is professor of finance at Edith Cowan University, Perth, Western Australia He is the author of... (financial markets) within the U.S Federal Reserve system (St Louis FED), where he still covers advising roles From December 2007 he has been co-director of the Center for Analysis of Investment Risk, at Manchester Business School His research focuses on predictability and nonlinear dynamics in financial returns, with applications to portfolio management, and sources and dynamics of volatility and higher-order . Cataloging-in-Publication Data Stock market volatility / Greg N. Gregoriou. p. cm. (Chapman & Hall/CRC Finance series ; 2) Includes bibliographical references and index. ISBN 97 8-1 -4 20 0-9 95 4-6 (acid-free. Modeling Stock Market Volatility C HAPTER 1 ®ÊÊ An Overview of the Issues Surrounding Stock Market Volatility 3 ELENA KALOTYCHOU AND SOTIRIS K. STAIKOURAS CHAPTER 2 ®ÊÊ Analysis of Stock Market Volatility. works Printed in the United States of America on acid-free paper 10 9 8 7 6 5 4 3 2 1 International Standard Book Number-13: 97 8-1 -4 20 0-9 95 4-6 (Hardcover) This book contains information obtained from