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Intraday Behavior of Bid-Ask Spreads - for Nasdaq Stocks on Trading Days around Holidays
--Dong Y Nyonna
The paper examines the intraday pattern of bid-ask spreads for Nasdaq stocks on trading days around holidays. A plot of mean percentage bid-ask spreads shows that spreads are highest at the open, fall slightly after the first few minutes of trading, and remain relatively constant till around the close of trading, when they fall slightly. The results of this study are consistent with those of Chan et al. (1995), but inconsistent with those of Chung and Zhao (2003). We attribute the observed pattern of spreads in this study to the low participation of Electronic Communication Networks (ECNs) on trading days around holidays. Finally, we show that both the intraday trading volume and volatility patterns are `U-shaped', supporting the results documented on regular trading days.
© 2008 IUP . All Rights Reserved.
Co-Movement of Conditional Volatility Matter in Asset Pricing: Further Evidence in the Downside and Conventional Pricing Frameworks
--Song Li and Don U A Galagedera
This paper models country-specific equity market return and the association between country-specific equity market volatility and that of the world market in the downside and conventional asset pricing frameworks. For this purpose, a Factor-ARCH type process is adopted where world market risk (beta) is estimated in the mean equation and the exposure of country-specific market volatility to world market volatility (volatility beta) is estimated in the variance equation. Generally, the beta is estimated higher for the developed markets than for the emerging markets and the reverse is observed in volatility beta. Even though the two types of betas are positive and significant, a cross-sectional analysis reveals that volatility beta is not priced. These results were observed when the analysis was carried out from an international investor's perspective. When the analysis is repeated in sub-periods delineated via breakpoints in the world market return series and with alternative specifications of the variance equation, the findings of the study remain largely unchanged.
© 2008 IUP . All Rights Reserved.
A Relook at the VaR Computation Method Recommended by National Stock Exchange of India
--Atanu Das, Pramatha Nath Basu and Sudev C Das
This paper addresses the question of whether the VaR estimation technique, originally prescribed by Riskmetrics and recommended after adaptation by the NSE, adequate enough to estimate VaR in the changing Indian market scenario, especially during the past one year when the markets exhibited considerable activity. This study describes the empirical investigation carried out centered on computing and backtesting VaR estimates of several indices designed by the NSE and Sensex values using recommended Exponentially Weighted Moving Average (EWMA) method and the dynamic volatility model based on GARCH. The results indicate that the GARCH-based VaR estimation method outperforms the officially recommended EWMA method; hence, the study advocates re-examination of the recommended method by appropriate bodies.
© 2008 IUP . All Rights Reserved.
Risk Forecasting with Conditional Quantile Expected Shortfall
--Sait Yilmazer, Alper Ozun and Atilla Cifter
In emerging markets, prices of financial assets might display immediate and high changes. High volatility in returns leads investors to take nonlinear decisions on risk-return balance by disrupting their perceptions. Traditional Value-at-Risk (VaR) models might have difficulties in capturing the fat tails emerging from high volatilities in the asset prices. This study by employing daily closing values of the Istanbul Stock Exchange (ISE) National 100 Index between January 2003 and February 2007 estimates value at risk using expected shortfall with conditional threshold. Performance of the model is compared to those of Generalized Autoregressive Conditional Heteroskedasticity (GARCH) with normal distribution and Generalized Pareto Distribution (GPD). The results reveal that expected shortfall with conditional threshold has better estimation performance in the middle and long run. The results of the backtests imply that expected shortfall with conditional threshold is more proper for the emerging markets because of their ability to capture the value-at-risk from a higher level.
© 2008 IUP . All Rights Reserved.
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