Search results for: asymmetry volatility

Authors: Xin-Hua Zhao

Abstract:

In recent years, the growth rate of social responsibility reports disclosed by Chinese corporations has grown rapidly. The economic effects of the growing corporate social responsibility reports have become a hot topic. The article takes the chemical listed engineering corporations that disclose social responsibility reports in China as a sample, and based on the information asymmetry theory, examines the economic effect generated by corporate social responsibility disclosure with the method of ordinary least squares. The research is conducted from the perspective of analysts’ earnings forecasts and studies the impact of corporate social responsibility information disclosure on improving the accuracy of analysts' earnings forecasts. The results show that there is a statistically significant negative correlation between corporate social responsibility disclosure index and analysts’ earnings forecast error. The conclusions confirm that enterprises can reduce the asymmetry of social and environmental information by disclosing social responsibility reports, and thus improve the accuracy of analysts’ earnings forecasts. It can promote the effective allocation of resources in the market.

Keywords: analysts' earnings forecasts, corporate social responsibility disclosure, economic effect, information asymmetry

Procedia PDF Downloads 135

Authors: Xu Wang

Abstract:

This research builds linear regressions of U.S. macroeconomic condition and volatility measures in the investment grade and high yield Credit Default Swap index spreads using monthly data from March 2009 to July 2016, to study the relationship between different dimensions of macroeconomy and overall credit risk quality. The most significant contribution of this research is systematically examining individual and joint effects of macroeconomic condition and volatility on CDX spreads by including macroeconomic time series that captures different dimensions of the U.S. economy. The industrial production index growth, non-farm payroll growth, consumer price index growth, 3-month treasury rate and consumer sentiment are introduced to capture the condition of real economic activity, employment, inflation, monetary policy and risk aversion respectively. The conditional variance of the macroeconomic series is constructed using ARMA-GARCH model and is used to measure macroeconomic volatility. The linear regression model is conducted to capture relationships between monthly average CDX spreads and macroeconomic variables. The Newey–West estimator is used to control for autocorrelation and heteroskedasticity in error terms. Furthermore, the sensitivity factor analysis and standardized coefficients analysis are conducted to compare the sensitivity of CDX spreads to different macroeconomic variables and to compare relative effects of macroeconomic condition versus macroeconomic uncertainty respectively. This research shows that macroeconomic condition can have a negative effect on CDX spread while macroeconomic volatility has a positive effect on determining CDX spread. Macroeconomic condition and volatility variables can jointly explain more than 70% of the whole variation of the CDX spread. In addition, sensitivity factor analysis shows that the CDX spread is the most sensitive to Consumer Sentiment index. Finally, the standardized coefficients analysis shows that both macroeconomic condition and volatility variables are important in determining CDX spread but macroeconomic condition category of variables have more relative importance in determining CDX spread than macroeconomic volatility category of variables. This research shows that the CDX spread can reflect the individual and joint effects of macroeconomic condition and volatility, which suggests that individual investors or government should carefully regard CDX spread as a measure of overall credit risk because the CDX spread is influenced by macroeconomy. In addition, the significance of macroeconomic condition and volatility variables, such as Non-farm Payroll growth rate and Industrial Production Index growth volatility suggests that the government, should pay more attention to the overall credit quality in the market when macroecnomy is low or volatile.

Keywords: autoregressive moving average model, credit spread puzzle, credit default swap spread, generalized autoregressive conditional heteroskedasticity model, macroeconomic conditions, macroeconomic uncertainty

Procedia PDF Downloads 147

Authors: Shuofen Hsu, Ya-Yi Chao, Chao-Wei Li

Abstract:

This paper investigates the relationship between voluntary audit (hereafter, VA) of semi-annual consolidated financial statements decision and accounting conservatism. In general, there are four kinds of auditors' assurance services, which include audit, review, agreed-upon procedure and compliance engagements base on degree of assurance. The VA work by auditors may not only have the higher audit quality but an important signal of more reliable information than the review work. In Taiwan, The listed companies must prepare the semi-annual consolidated financial statements and with auditors' review before 2012, but some of the listed companies choose the assurance work from review to audit voluntarily. Due to the adoption of International Financial Reporting Standards, the listed companies were required to prepare the second quarterly consolidated financial statements which should be reviewed by auditors since 2013. This rule will change some of the assurance work from audit to review by auditors, and the information asymmetry maybe increased. To control the selection bias, we use two-stage model to test the relationship between VA decision and accounting conservatism. Our empirical results indicate that the VA decision and accounting conservatism have a significant positive relationship in firms with family-controlled. That is, firms with family-controlled are more likely to do VA and to prepare more conservative consolidated financial statements to reduce the information asymmetry, meaning that there is a complementary effect between VA and accounting conservatism for firms with more information asymmetry. But on the contrary, we find that the VA decision and accounting conservatism have a significant negative relationship in firms with professional managers-controlled, meaning that there is a substitution effect between VA and accounting conservatism for firms with less information asymmetry. Finally, the accounting conservatism of consolidated financial statements decrease after the adoption of IFRSs (International Financial Reporting Standards) in Taiwan. It means that the disclosure and transparency of consolidated financial statements had be improved.

Keywords: voluntary audit, accounting conservatism, audit quality, information asymmetry

Procedia PDF Downloads 206

Authors: Shay Kee Tan, Kok Haur Ng, Jennifer So-Kuen Chan

Abstract:

This paper extends the conditional autoregressive range (CARR) model to multivariate CARR (MCARR) model and further to the two-stage MCARR-return model to model and forecast volatilities, correlations and returns of multiple financial assets. The first stage model fits the scaled realised Parkinson volatility measures using individual series and their pairwise sums of indices to the MCARR model to obtain in-sample estimates and forecasts of volatilities for these individual and pairwise sum series. Then covariances are calculated to construct the fitted variance-covariance matrix of returns which are imputed into the stage-two return model to capture the heteroskedasticity of assets’ returns. We investigate different choices of mean functions to describe the volatility dynamics. Empirical applications are based on the Standard and Poor 500, Dow Jones Industrial Average and Dow Jones United States Financial Service Indices. Results show that the stage-one MCARR models using asymmetric mean functions give better in-sample model fits than those based on symmetric mean functions. They also provide better out-of-sample volatility forecasts than those using CARR models based on two robust loss functions with the scaled realised open-to-close volatility measure as the proxy for the unobserved true volatility. We also find that the stage-two return models with constant means and multivariate Student-t errors give better in-sample fits than the Baba, Engle, Kraft, and Kroner type of generalized autoregressive conditional heteroskedasticity (BEKK-GARCH) models. The estimates and forecasts of value-at-risk (VaR) and conditional VaR based on the best MCARR-return models for each asset are provided and tested using Kupiec test to confirm the accuracy of the VaR forecasts.

Keywords: range-based volatility, correlation, multivariate CARR-return model, value-at-risk, conditional value-at-risk

Procedia PDF Downloads 80

Authors: Ethan Petersen

Abstract:

In this paper, we analyze the volatility of Apple’s stock beginning January 3, 2005 up to October 9, 2014, then focus on a range from 30 days prior to each product announcement until 30 days after. Product announcements are filtered; announcements whose 60 day range is devoid of other events are separated. This filtration is chosen to isolate, and study, a potential cross-effect. Concerning Apple keynotes, there are two significant dates: the day the invitations to the event are received and the day of the event itself. As such, the statistical analysis is conducted for both invite-centered and event-centered time frames. A comparison to the VIX is made to determine if the trend is simply following the market or deviating. Regardless of the filtration, we find that there is a clear deviation from the market. Comparing these data sets, there are significantly different trends: isolated events have a constantly decreasing, erratic trend in volatility but an increasing, linear trend is observed for clustered events. According to the Efficient Market Hypothesis, we would expect a change when new information is publicly known and the results of this study support this claim.

Keywords: efficient market hypothesis, event study, volatility, VIX

Procedia PDF Downloads 260

Authors: Shruti Sengupta

Abstract:

According to the nationally representative data, about 73% of India's rural workforce is engaged in agriculture. While women make significant contributions to total agriculture production, they contribute to about one-third in India. In terms of gender composition, about 80% of the female and 69% of the male workforce is engaged in agriculture in rural India. Still, it is common to find gender differences in plot management within the household. In the last two and half years, India's agri-food system has undergone several changes due to this pandemic, both the demand and supply side, making agriculture more information and knowledge-intensive. Therefore, this paper investigates, using a nationally representative sample, how information asymmetry affects the net returns per hectare of land between female and male farm managers. Empirical results show that information intensity has a significant positive effect on net farm returns per hectare. Results suggest that if females have the same access to technical information as their male counterparts, their farm income can go up by .96 pp compared to male-headed farms. Results also indicate that literate females have higher farm incomes than non-literate females. The study contributes to the literature by employing gender differentials in farm income due to the information gap.

Keywords: agriculture, gender, information asymmetry, farm income, social bias

Procedia PDF Downloads 120

Authors: Shruti Sengupta

Abstract:

According to the nationally representative data, about 73% of India's rural workforce is engaged in agriculture. While women make significant contributions to total agriculture production, they contribute to about one-third in India. In terms of gender composition, about 80% of the female and 69% of the male workforce is engaged in agriculture in rural India. Still, it is common to find gender differences in plot management within the household. In the last two and half years, India's agri-food system has undergone several changes due to this pandemic, both the demand and supply side, making agriculture more information and knowledge-intensive. Therefore, this paper investigates, using a nationally representative sample, how information asymmetry affects the net returns per hectare of land between female and male farm managers. Empirical results show that information intensity has a significant positive effect on net farm returns per hectare. Results suggest that if females have the same access to technical information as their male counterparts, their farm income can go up by .96 pp compared to male-headed farms. Results also indicate that literate females have higher farm incomes than non-literate females. The study contributes to the literature by employing gender differentials in farm income due to the information gap.

Keywords: agriculture, gender, information asymmetry, farm income, social bias

Procedia PDF Downloads 85

Authors: Pratap Chandra Pati, Prabina Rajib, Parama Barai

Abstract:

The traditional finance theory neglects the role of sentiment factor in asset pricing. However, the behavioral approach to asset-pricing based on noise trader model and limit to arbitrage includes investor sentiment as a priced risk factor in the assist pricing model. Investor sentiment affects stock more that are vulnerable to speculation, hard to value and risky to arbitrage. It includes small stocks, high volatility stocks, growth stocks, distressed stocks, young stocks and non-dividend-paying stocks. Since the introduction of Chicago Board Options Exchange (CBOE) volatility index (VIX) in 1993, it is used as a measure of future volatility in the stock market and also as a measure of investor sentiment. CBOE VIX index, in particular, is often referred to as the ‘investors’ fear gauge’ by public media and prior literature. The upward spikes in the volatility index are associated with bouts of market turmoil and uncertainty. High levels of the volatility index indicate fear, anxiety and pessimistic expectations of investors about the stock market. On the contrary, low levels of the volatility index reflect confident and optimistic attitude of investors. Based on the above discussions, we investigate whether market-wide fear levels measured volatility index is priced factor in the standard asset pricing model for the Indian stock market. First, we investigate the performance and validity of Fama and French three-factor model and Carhart four-factor model in the Indian stock market. Second, we explore whether India volatility index as a proxy for fearful market-based sentiment indicators affect the cross section of stock returns after controlling for well-established risk factors such as market excess return, size, book-to-market, and momentum. Asset pricing tests are performed using monthly data on CNX 500 index constituent stocks listed on the National stock exchange of India Limited (NSE) over the sample period that extends from January 2008 to March 2017. To examine whether India volatility index, as an indicator of fear sentiment, is a priced risk factor, changes in India VIX is included as an explanatory variable in the Fama-French three-factor model as well as Carhart four-factor model. For the empirical testing, we use three different sets of test portfolios used as the dependent variable in the in asset pricing regressions. The first portfolio set is the 4x4 sorts on the size and B/M ratio. The second portfolio set is the 4x4 sort on the size and sensitivity beta of change in IVIX. The third portfolio set is the 2x3x2 independent triple-sorting on size, B/M and sensitivity beta of change in IVIX. We find evidence that size, value and momentum factors continue to exist in Indian stock market. However, VIX index does not constitute a priced risk factor in the cross-section of returns. The inseparability of volatility and jump risk in the VIX is a possible explanation of the current findings in the study.

Keywords: India VIX, Fama-French model, Carhart four-factor model, asset pricing

Procedia PDF Downloads 230

Authors: Sahani Rathnasiri, Pritee Ray, Sardar M. N. Isalm, Carlos A. Vega-Mejia

Abstract:

This study develops a cooperative game theory-based cost-sharing contract model for a business to consumer (B2C) e-commerce supply chain to minimize the overall supply chain costs and the individual costs within an information asymmetry scenario. The objective of this study is to address the issues of strategic interactions among the key players of the e-commerce supply chain operation, which impedes the optimal operational outcomes. Game theory has been included in the field of supply chain management to resolve strategic decision-making issues; however, most of the studies are limited only to two-echelons of the supply chains. Multi-echelon supply chain optimizations based on game-theoretic models are less explored in the previous literature. This study adopts a cooperative game model to focus on the common payoff of operations and addresses the issues of information asymmetry and coordination of a three-echelon e-commerce supply chain. The cost-sharing contract model integrates operational features such as production, inventory management and distribution with the contract related constraints. The outcomes of the model highlight the importance of maintaining lower operational costs by all players to obtain benefits from the cost-sharing contract. Further, the cost-sharing contract ensures true cost revelation, and hence eliminates the information asymmetry issues among the players. Comparing the results of the contract model with the de-centralized e-commerce supply chain operation further emphasizes that the cost-sharing contract derives Pareto-improved outcomes and minimizes the costs of overall e-commerce supply chain operation.

Keywords: cooperative game theory, cost-sharing contract, e-commerce supply chain, information asymmetry

Procedia PDF Downloads 102

Authors: Fayaz Moosavi, Saeid Moradyfard

Abstract:

One of the methods in avoiding management fraud and increasing the quality of financial information, is the notification of qualitative features of financial information, including conservatism characteristic. Although taking a conservatism approach, while boosting the quality of financial information, is able to reduce the informational risk and the cost of capital stock of commercial department, by presenting an improper image about the situation of the commercial department, raises the risk of failure in returning the main and capital interest, and consequently the cost of capital of the commercial department. In order to know if conservatism finally leads to the increase or decrease of the cost of capital or does not have any influence on it, information regarding accepted companies in Tehran stock exchange is utilized by application of pooling method from 2007 to 2012 and it included 124 companies. The results of the study revealed that there is an opposite and meaningful relationship between conditional conservatism and the cost of capital of the company. In other words, if bad and unsuitable news and signs are reflected sooner than good news in accounting profit, the cost of capital of the company increases. In addition, there is a positive and meaningful relationship between the cost of capital and lack of information asymmetry.

Keywords: conditional conservatism, lack of information asymmetry, the cost of capital, stock exchange

Procedia PDF Downloads 243

Authors: Simon Huston, Ebraheim Lahbash, Ali Parsa

Abstract:

The development of the United Arab Emirates (UAE) into a regional trade, tourism, finance and logistics hub has transformed its real estate markets. However, speculative activity and price volatility remain concerns. UAE residential market values (MV) are exposed to fluctuations in capital flows and migration which in turn are affected by geopolitical uncertainty, oil price volatility, and global investment market sentiment. Internally, a complex interplay between administrative boundaries, land tenure, building quality and evolving location characteristics fragments UAE residential property markets. In short, the UAE Residential Valuation System (UAE-RVS) confronts multiple challenges to collect, filter and analyze relevant information in complex and dynamic spatial and capital markets. A robust (RVS) can mitigate the risk of unhelpful volatility, speculative excess or investment mistakes. The research outlines the institutional, ontological, dynamic, and epistemological issues at play. We highlight the importance of system capabilities, valuation standard salience and stakeholders trust.

Keywords: valuation, property rights, information, institutions, trust, salience

Procedia PDF Downloads 359

Authors: Helena Susana Afonso Alves, Natália Maria Rafael Canadas, Ana Maria Rodrigues

Abstract:

We examined the impact of governance rules on information asymmetry, using the turnover ratio and the bid-ask spread as proxies for the information asymmetry. We used a SEM model and analyzed the indirect relations through the voluntary disclosure of information and the organizational performance. We built a voluntary disclosure index based on the information firms provided in their annual reports and divided the governance characteristics in two constructs: directors’ and supervisors’ structures and ownership structure. We concluded that the ownership structure exerts a direct influence on share price and share liquidity, Otherwise, the directors’ and supervisors’ structures exert an indirect influence, through the organizational performance and the voluntary disclosure of information. The results also show that for firms with high levels of disclosure the bid-ask spread is lower. However, in firms with a high ownership concentration investors tend to increase the bid-ask spreads and trade less, which, in this case, reduces the liquidity of the stock. The failure to find the relationship between voluntary disclosure of information and the turnover ratio shows us that the liquidity of shares is more related to the greater or lesser concentration of shareholders, with the performance of their companies than with the access to information. Moreover, it is clear that the role that information disclosure plays is mainly at the level of price formation.

Keywords: corporate governance, information asymmetry, voluntary disclosure, structural equation modelling, SEM

Procedia PDF Downloads 488

Authors: Fatma Ismailia, Malek Saihi

Abstract:

This research provides an explanation of exchange incentives on the Tunis stock market from a behavioural point of view. The elucidation of the anomalies of excessive volume of transactions and that of excessive volatility cannot be done without the recourse to the psychological aspects of investors. The excessive confidence has been given the predominant role for the explanation of these phenomena. Indeed, when investors store increments, they become more confident about the precision of their private information and their exchange activities then become more aggressive on the subsequent periods. These overconfident investors carry out the intensive exchanges leading to an increase of securities volatility. The objective of this research is to identify whether the trading volume and the excessive volatility of securities observed on the Tunisian stock market come from the excessive exchange of overconfident investors. We use a sample of daily observations over the period January 1999 - October 2007 and we relied on various econometric tests including the VAR model. Our results provide evidence on the importance to consider the bias of overconfidence in the analysis of Tunis stock exchange specificities. The results reveal that the excess of confidence has a major impact on the trading volume while using daily temporal intervals.

Keywords: overconfidence, trading volume, efficiency, rationality, anomalies, behavioural finance, cognitive biases

Procedia PDF Downloads 392

Authors: Marc S. Paolella, Pawel Polak

Abstract:

The paper proposes a framework for large-scale portfolio optimization which accounts for all the major stylized facts of multivariate financial returns, including volatility clustering, dynamics in the dependency structure, asymmetry, heavy tails, and non-ellipticity. It introduces a so-called risk fear portfolio strategy which combines portfolio optimization with active risk monitoring. The former selects optimal portfolio weights. The latter, independently, initiates market exit in case of excessive risks. The strategy agrees with the stylized fact of stock market major sell-offs during the initial stage of market downturns. The advantages of the new framework are illustrated with an extensive empirical study. It leads to superior multivariate density and Value-at-Risk forecasting, and better portfolio performance. The proposed risk fear portfolio strategy outperforms various competing types of optimal portfolios, even in the presence of conservative transaction costs and frequent rebalancing. The risk monitoring of the optimal portfolio can serve as an early warning system against large market risks. In particular, the new strategy avoids all the losses during the 2008 financial crisis, and it profits from the subsequent market recovery.

Keywords: comfort, financial crises, portfolio optimization, risk monitoring

Procedia PDF Downloads 502

Authors: Manas Shah

Abstract:

Black Scholes option pricing model is one of the most important concepts in modern world of computational finance. However, its practical use can be challenging as one of the input parameters must be estimated; implied volatility of the underlying security. The more precisely these values are estimated, the more accurate their corresponding estimates of theoretical option prices would be. Here, we present a novel model based on Cuckoo Search Optimization (CS) which finds more precise estimates of implied volatility than Particle Swarm Optimization (PSO) and Genetic Algorithm (GA).

Keywords: black scholes model, cuckoo search optimization, particle swarm optimization, genetic algorithm

Procedia PDF Downloads 432

Authors: Abdelli Soulaima, Belhadj Besma

Abstract:

The paper examines the choice of the central bank toward the movements of the nominal exchange rate and evaluates its effects on the volatility of the output growth and the inflation. The novel hybrid method of the dynamic stochastic general equilibrium called the DSGE-VAR is proposed for analyzing this policy experiment in a small scale open economy in particular Tunisia. The contribution is provided to the empirical literature as we apply the Tunisian data with this model, which is rarely used in this context. Note additionally that the issue of treating the degree of response of the central bank to the exchange rate in Tunisia is special. To ameliorate the estimation, the Bayesian technique is carried out for the sample 1980:q1 to 2011 q4. Our results reveal that the central bank should not react or softly react to the exchange rate. The variance decomposition displayed that the overall inflation volatility is more pronounced with the fixed exchange rate regime for most of the shocks except for the productivity and the interest rate. The output volatility is also higher with this regime with the majority of the shocks exempting the foreign interest rate and the interest rate shocks.

Keywords: DSGE-VAR modeling, exchange rate, monetary policy, Bayesian estimation

Procedia PDF Downloads 277

Authors: Timothy Kayode Samson, Adedoyin Isola Lawal

Abstract:

The past five years have shown a sharp increase in public interest in the crypto market, with its market capitalization growing from $100 billion in June 2017 to $2158.42 billion on April 5, 2022. Despite the outrageous nature of the volatility of cryptocurrencies, the use of skewed error innovation distributions in modelling the volatility behaviour of these digital currencies has not been given much research attention. Hence, this study models the volatility of 5 largest cryptocurrencies by market capitalization (Bitcoin, Ethereum, Tether, Binance coin, and USD Coin) using four variants of GARCH models (GJR-GARCH, sGARCH, EGARCH, and APARCH) estimated using three skewed error innovation distributions (skewed normal, skewed student- t and skewed generalized error innovation distributions). Daily closing prices of these currencies were obtained from Yahoo Finance website. Finding reveals that the Binance coin reported higher mean returns compared to other digital currencies, while the skewness indicates that the Binance coin, Tether, and USD coin increased more than they decreased in values within the period of study. For both Bitcoin and Ethereum, negative skewness was obtained, meaning that within the period of study, the returns of these currencies decreased more than they increased in value. Returns from these cryptocurrencies were found to be stationary but not normality distributed with evidence of the ARCH effect. The skewness parameters in all best forecasting models were all significant (p<.05), justifying of use of skewed error innovation distributions with a fatter tail than normal, Student-t, and generalized error innovation distributions. For Binance coin, EGARCH-sstd outperformed other volatility models, while for Bitcoin, Ethereum, Tether, and USD coin, the best forecasting models were EGARCH-sstd, APARCH-sstd, EGARCH-sged, and GJR-GARCH-sstd, respectively. This suggests the superiority of skewed Student t- distribution and skewed generalized error distribution over the skewed normal distribution.

Keywords: skewed generalized error distribution, skewed normal distribution, skewed student t- distribution, APARCH, EGARCH, sGARCH, GJR-GARCH

Procedia PDF Downloads 77

Authors: Yohanna Panshak

Abstract:

The impact of macroeconomic instability on economic growth and prosperity has been at forefront in many discourses among researchers and policy makers and has generated a lot of controversies over the years. This has generated series of research efforts towards understanding the remote causes of this phenomenon; its nature, determinants and how it can be targeted and mitigated. While others have opined that the root cause of macroeconomic flux in Nigeria is attributed to Oil-Price volatility, others viewed the issue as resulting from some constellation of structural constraints both within and outside the shores of the country. Research works of scholars such as [Akpan (2009), Aliyu (2009), Olomola (2006), etc] argue that oil volatility can determine economic growth or has the potential of doing so. On the contrary, [Darby (1982), Cerralo (2005) etc] share the opinion that it can slow down growth. The earlier argument rest on the understanding that for a net balance of oil exporting economies, price upbeat directly increases real national income through higher export earnings, whereas, the latter allude to the case of net-oil importing countries (which experience price rises, increased input costs, reduced non-oil demand, low investment, fall in tax revenues and ultimately an increase in budget deficit which will further reduce welfare level). Therefore, assessing the precise impact of oil price volatility on virtually any economy is a function of whether it is an oil-exporting or importing nation. Research on oil price volatility and its outcome on the growth of the Nigerian economy are evolving and in a march towards resolving Nigeria’s macroeconomic instability as long as oil revenue still remain the mainstay and driver of socio-economic engineering. Recently, a major importer of Nigeria’s oil- United States made a historic breakthrough in more efficient source of energy for her economy with the capacity of serving significant part of the world. This undoubtedly suggests a threat to the exchange earnings of the country. The need to understand fluctuation in its major export commodity is critical. This paper leans on the Renaissance growth theory with greater focus on theoretical work of Lee (1998); a leading proponent of this school who makes a clear cut of difference between oil price changes and oil price volatility. Based on the above background, the research seeks to empirically examine the impact oil-price volatility on government expenditure using quarterly time series data spanning 1986:1 to 2014:4. Vector Auto Regression (VAR) econometric approach shall be used. The structural properties of the model shall be tested using Augmented Dickey-Fuller and Phillips-Perron. Relevant diagnostics tests of heteroscedasticity, serial correlation and normality shall also be carried out. Policy recommendation shall be offered on the empirical findings and believes it assist policy makers not only in Nigeria but the world-over.

Keywords: oil-price, volatility, prosperity, budget, expenditure

Procedia PDF Downloads 251

Authors: Edson Vengesai

Abstract:

Derivative products have become essential instruments in portfolio diversification, price discovery, and, most importantly, risk hedging. Derivatives are complex instruments; their valuation, volatility implications, and real impact on the underlying assets' behaviour are not well understood. Little is documented empirically, with conflicting conclusions on how these instruments affect firm risk exposures. Given the growing interest in using derivatives in risk management and portfolio engineering, this study examines the practical impact of derivative usage on the underlying stock price exposure and systematic risk. The paper uses data from South African listed firms. The study employs GARCH models to understand the effect of derivative uses on conditional stock volatility. The GMM models are used to estimate the effect of derivatives use on stocks' systematic risk as measured by Beta and on the total risk of stocks as measured by the standard deviation of returns. The results provide evidence on whether derivatives use is instrumental in reducing stock returns' systematic and total risk. The results are subjected to numerous controls for robustness, including financial leverage, firm size, growth opportunities, and macroeconomic effects.

Keywords: derivatives use, hedging, volatility, stock price exposure

Procedia PDF Downloads 89

Authors: Massimiliano Frezza, Sergio Bianchi, Augusto Pianese

Abstract:

The relation between stock price volatility and trading volume represents a controversial issue which has received a remarkable attention over the past decades. In fact, an extensive literature shows a positive relation between price volatility and trading volume in the financial markets, but the causal relationship which originates such association is an open question, from both a theoretical and empirical point of view. In this regard, various models, which can be considered as complementary rather than competitive, have been introduced to explain this relationship. They include the long debated Mixture of Distributions Hypothesis (MDH); the Sequential Arrival of Information Hypothesis (SAIH); the Dispersion of Beliefs Hypothesis (DBH); the Noise Trader Hypothesis (NTH). In this work, we analyze whether stock market efficiency can explain the diversity of results achieved during the years. For this purpose, we propose an alternative measure of market efficiency, based on the pointwise regularity of a stochastic process, which is the Hurst–H¨older dynamic exponent. In particular, we model the stock market by means of the multifractional Brownian motion (mBm) that displays the property of a time-changing regularity. Mostly, such models have in common the fact that they locally behave as a fractional Brownian motion, in the sense that their local regularity at time t0 (measured by the local Hurst–H¨older exponent in a neighborhood of t0 equals the exponent of a fractional Brownian motion of parameter H(t0)). Assuming that the stock price follows an mBm, we introduce and theoretically justify the Hurst–H¨older dynamical exponent as a measure of market efficiency. This allows to measure, at any time t, markets’ departures from the martingale property, i.e. from efficiency as stated by the Efficient Market Hypothesis. This approach is applied to financial markets; using data for the SP500 index from 1978 to 2017, on the one hand we find that when efficiency is not accounted for, a positive contemporaneous relationship emerges and is stable over time. Conversely, it disappears as soon as efficiency is taken into account. In particular, this association is more pronounced during time frames of high volatility and tends to disappear when market becomes fully efficient.

Keywords: volume–volatility relationship, efficient market hypothesis, martingale model, Hurst–Hölder exponent

Procedia PDF Downloads 64

Authors: Boulis M. Ibrahim, Iordanis A. Kalaitzoglou

Abstract:

A micro structural pricing model is proposed in which price components account for learning by incorporating changing expectations of the trading intensity and the risk level of incoming trades. An analysis of European carbon futures transactions finds expected trading intensity to increase the information component and decrease the liquidity component of price changes, but at different rates. Among the results, the expected persistence in trading intensity explains the majority of the auto correlations in the level and the conditional volatility of price changes, helps predict hourly patterns in the bid–ask spread and differentiates between the impact of buy versus sell and continuing versus reversing trades.

Keywords: CO2 emission allowances, market microstructure, duration, price discovery

Procedia PDF Downloads 387

Authors: Sana Ilyas

Abstract:

Parry-Romberg syndrome is a rare condition clinically defined by slowly progressive atrophy of the skin and soft tissues. This usually effects one side of the face, although a few cases have been documented of bilateral presentation. It is more prevalent in females and usually affects the left side of the face. The syndrome can also be accompanied by neurological abnormalities. It usually occurs in the first two decades of life with a variable rate of progression. The aetiology is unknown, and the disease eventually stabilises. The treatment options usually involve surgical management. The least invasive of these options is the management of facial asymmetry, associated with Parry Romberg syndrome, through the use of tissue fillers. This paper will review the existing literature on the management of Parry Romberg syndrome with tissue filler. Aim: The aim of the study is to explore the current published literature for the management of Parry Romberg syndrome with fillers. It is to assess the development that has been made in this method of management, its benefits and limitations, and its effectiveness for the management of Parry Romberg syndrome. Methodology: There was a thorough assessment of the current literature published on this topic. PubMed database was used for search of the published literature on this method of the management. Papers were analysed and compared with one another to assess the success and limitation of the management of Parry Romberg with dermal fillers Results and Conclusion: Case reports of the use of tissue fillers discuss the varying degrees of success with the treatment. However, this procedure has it’s limitation, which are discussed in the paper in detail. However, it is still the least invasive of all the surgical options for the management of Parry Romberg Syndrome, and therefore, it is important to explore this option with patients, as they may be more comfortable with pursuingtreatment that is less invasive and can still improve their facial asymmetry

Keywords: dermal fillers, facial asymmetry, parry romberg syndrome, tissue fillers

Procedia PDF Downloads 71

Authors: Gabriele Iannotta

Abstract:

This paper investigates credit cycles by means of an experiment based on a Kiyotaki & Moore (1997) model with heterogeneous expectations. The aim is to examine how a credit squeeze caused by high lender-level risk perceptions affects the real prices of a collateralised asset, with a special focus on the macroeconomic implications of rising price volatility in terms of total welfare and the number of bankruptcies that occur. To do that, a learning-to-forecast experiment (LtFE) has been run where participants are asked to predict the future price of land and then rewarded based on the accuracy of their forecasts. The setting includes one lender and five borrowers in each of the twelve sessions split between six control groups (G1) and six treatment groups (G2). The only difference is that while in G1 the lender always satisfies borrowers’ loan demand (bankruptcies permitting), in G2 he/she closes the entire credit market in case three or more bankruptcies occur in the previous round. Experimental results show that negative risk-driven supply shocks amplify the volatility of collateral prices. This uncertainty worsens the agents’ ability to predict the future value of land and, as a consequence, the number of defaults increases and the total welfare deteriorates.

Keywords: Behavioural Macroeconomics, Credit Cycle, Experimental Economics, Heterogeneous Expectations, Learning-to-Forecast Experiment

Procedia PDF Downloads 112

Authors: Yuri Boiko, Iluju Kiringa, Tet Yeap

Abstract:

Current drainage attack suggested previously is further studied in regular settings of closed-loop controlled Brushless DC (BLDC) motor with Kalman filter in the feedback loop. Modeling and simulation experiments are conducted in a Matlab environment, implementing the closed-loop control model of BLDC motor operation in position sensorless mode under Kalman filter drive. The current increase in the motor windings is caused by the controller (p-controller in our case) affected by false data injection of substitution of the angular velocity estimates with distorted values. Operation of multiplication to distortion coefficient, values of which are taken from the distortion function synchronized in its periodicity with the rotor’s position change. A saw function with a triangular tooth shape is studied herewith for the purpose of carrying out the bias injection with current drainage consequences. The specific focus here is on how the asymmetry of the tooth in the saw function affects the flow of current drainage. The purpose is two-fold: (i) to produce and collect the signature of an asymmetric saw in the attack for further pattern recognition process, and (ii) to determine conditions of improving stealthiness of such attack via regulating asymmetry in saw function used. It is found that modification of the symmetry in the saw tooth affects the periodicity of current drainage modulation. Specifically, the modulation frequency of the drained current for a fully asymmetric tooth shape coincides with the saw function modulation frequency itself. Increasing the symmetry parameter for the triangle tooth shape leads to an increase in the modulation frequency for the drained current. Moreover, such frequency reaches the switching frequency of the motor windings for fully symmetric triangular shapes, thus becoming undetectable and improving the stealthiness of the attack. Therefore, the collected signatures of the attack can serve for attack parameter identification via the pattern recognition route.

Keywords: bias injection attack, Kalman filter, BLDC motor, control system, closed loop, P-controller, PID-controller, current drainage, saw-function, asymmetry

Procedia PDF Downloads 59

Authors: H. D. Ibrahim, H. C. Chinwenyi, T. Danjuma

Abstract:

An option is defined as a financial contract that provides the holder the right but not the obligation to buy or sell a specified quantity of an underlying asset in the future at a fixed price (called a strike price) on or before the expiration date of the option. This paper examined two approaches for derivation of Partial Differential Equation (PDE) options price valuation formula for the Heston stochastic volatility model. We obtained various PDE option price valuation formulas using the riskless portfolio method and the application of Feynman-Kac theorem respectively. From the results obtained, we see that the two derived PDEs for Heston model are distinct and non-unique. This establishes the fact of incompleteness in the model for option price valuation.

Keywords: Black-Scholes partial differential equations, Ito process, option price valuation, partial differential equations

Procedia PDF Downloads 121

Authors: Manel Youssef, Lotfi Belkacem

Abstract:

This paper employs multivariate long memory GARCH models to simultaneously estimate mean and conditional variance spillover effects between oil prices and different financial markets. Since different financial assets are traded based on these market sector returns, it’s important for financial market participants to understand the volatility transmission mechanism over time and across these series in order to make optimal portfolio allocation decisions. We examine weekly returns from January 1, 2003 to November 30, 2012 and find evidence of significant transmission of shocks and volatilities between oil prices and some of the examined financial markets. The findings support the idea of cross-market hedging and sharing of common information by investors.

Keywords: oil prices, stock indices returns, oil volatility, contagion, DCC-multivariate (FI) GARCH

Procedia PDF Downloads 508

Authors: Magdalena Jablonska, Andrzej Falkowski

Abstract:

The negativity effect is one of the most intriguing and well-studied psychological phenomena that can be observed in many areas of human life. The aim of the following study is to investigate how valence framing and positive and negative information about political candidates affect judgments about similarity to an ideal and bad politician. Based on the theoretical framework of features of similarity, it is hypothesized that negative features have a stronger effect on similarity judgments than positive features of comparable value. Furthermore, the mediating role of affect is tested. Method: One hundred sixty-one people took part in an experimental study. Participants were divided into 6 research conditions that differed in the reference point (positive vs negative framing) and the number of favourable and unfavourable information items about political candidates (a positive, neutral and negative candidate profile). In positive framing condition, the concept of an ideal politician was primed; in the negative condition, participants were to think about a bad politician. The effect of independent variables on similarity judgments, affective evaluation, and voting intention was tested. Results: In the positive condition, the analysis showed that the negative effect of additional unfavourable features was greater than the positive effect of additional favourable features in judgements about similarity to the ideal candidate. In negative framing condition, ANOVA was insignificant, showing that neither the addition of positive features nor additional negative information had a significant impact on the similarity to a bad political candidate. To explain this asymmetry, two mediational analyses were conducted that tested the mediating role of affect in the relationship between similarity judgments and voting intention. In both situations the mediating effect was significant, but the comparison of two models showed that the mediation was stronger for a negative framing. Discussion: The research supports the negativity effect and attempts to explain the psychological mechanism behind the positive-negative asymmetry. The results of mediation analyses point to a stronger mediating role of affect in the relationship between cognitive evaluation and voting intention. Such a result suggests that negative comparisons, leading to the activation of negative features, give rise to stronger emotions than positive features of comparable strength. The findings are in line with positive-negative asymmetry, however, by adopting Tversky’s framework of features of similarity, the study integrates the cognitive mechanism of the negativity effect delineated in the contrast model of similarity with its emotional component resulting from the asymmetrical effect of positive and negative emotions on decision-making.

Keywords: affect, framing, negativity effect, positive-negative asymmetry, similarity judgements

Procedia PDF Downloads 177

Authors: Nishi Malhotra

Abstract:

Art has developed as a mode of investment and saving. Art and culture of any nation is the source of foreign direct investment (FDI) generation and growth development. Several intermediaries and skill-building organizations thrive on at and culture for their earnings. Indian art market has grown to Rs. 2000 Crores. Art establishment houses access to privileged information is the main reason for arbitrariness and volatility in the market. The commercialization of art and development of the markets with refinement in the taste of the customers have led to the development of art as an investment avenue. Investors keen on investing in these products can do so, and earnings from art are taxable too, like any other capital asset. This research paper is aimed at exploring the role of art and culture as an investment avenue in India and reasons for increasing volatilities in the art market. Based on an extensive literature review and secondary research, a benchmarking study has been conducted to capture the growth of the art as an investment avenue. These studies indicate that during the financial crisis of 2008-10, the art emerged as an alternative investment avenue. The paper aims at discussing the financial engineering of various art funds and instruments. Based on secondary data available from Sotheby’s, Christies, Bonham, there is a positive correlation between strategic diversification and increasing return in the Art market. Similarly, digitization has led to disintermediation in the art markets and also helped to increase the market base. The data clearly enumerates the growing interest of the Indian investor towards art as an investment option. Much like any other broad asset class, art market too thrives on excess returns provided by diversification. Many financial intermediaries and art funds have emerged, to offer valuable investment planning advisory to a genuine investor. This paper clearly highlights the increasing returns of strategic diversification and its impact on reducing volatility in the art markets. Moreover, with coming up of e-auctions and websites, investors are able to analyse art more objectively. Digitization and commercialization of art have definitely helped in reducing volatility in world art markets.

Keywords: art, investment avenue, diversification, digitization

Procedia PDF Downloads 105

Authors: Katja Ignatieva, Patrick Wong

Abstract:

We investigated the dynamics of high frequency energy prices, including crude oil and electricity prices. The returns of underlying quantities are modelled using various parametric models such as stochastic framework with jumps and stochastic volatility (SVCJ) as well as non-parametric alternatives, which are purely data driven and do not require specification of the drift or the diffusion coefficient function. Using different statistical criteria, we investigate the performance of considered parametric and nonparametric models in their ability to forecast price series and volatilities. Our models incorporate possible seasonalities in the underlying dynamics and utilise advanced estimation techniques for the dynamics of energy prices.

Keywords: stochastic volatility, affine jump-diffusion models, high frequency data, model specification, markov chain monte carlo

Procedia PDF Downloads 76

Authors: Abdullah M. Alzahrani

Abstract:

The karyotypes of Khalas (KH), Sukkary (SK), Sheeshi (SS), Shibeebi (SB) and Sillije (SJ) date palm cultivars were investigated. Data showed no variation in chromosome number, 2n = 36, 34 autosomes in addition to XX in females and XY in males. Mean autosomes length ranged from 3.85-9.93 μm and 3.71-2.73 μm for X and Y chromosomes, respectively. The formula of female date palm karyotype was 8m + 4sm +2st + 4t, and submedian Y chromosome. Relative chromosome length ranged from 3.3- 9.38 μm. SS cultivar showed high asymmetry levels by scoring low values of Syi (45.51), TF (42.8) and high values for A1 (0.53), A (0.41) and AI (0.29). Syi developed an inverse relation with A1 and A while A exhibited a direct correlation with A1. Cultivars SK, SB and SJ score medium values of Syi, A1, AI and A. KH cultivar exhibited high symmetry by scoring highest values of Syi (53.68), TF (51.81) and lowest values of A1 (0.44), A (0.34) and AI (0.18). Higher DI value was obtained in SB cultivar (1.34) followed by SJ (1.15) and low DI scores of 0.99, 0.86 and 0.71 were detected in KH, SS and SK, respectively. Stebbins classification assorted SS as 3B and the other cultivars as 2B, insuring the evolution and asymmetry of SS compared to the other karyotypes. Scatter diagram of Syi-A1 couple has the advantage of revealing high degree of sensitivity to present karyotype interrelationships, followed by AI-A and CVCL-CVCI couples.

Keywords: Karyotype, date palm, Khalas, Sukkary, Sheeshi

Procedia PDF Downloads 346