This paper provides a method for estimating the market risk premium that accounts for shifts in investment opportunities by explicitly modeling the underlying process governing the level of market volatility. I find that approximately 50% of the measured risk premium is related to the risk of future changes in investment opportunities. Evidence of a structural shift in the underlying volatility...

In this article, we examine the relation between return volatility, average trade size, and the frequency of transactions using transaction data. Consistent with Jones, Kaul, and Lipson (1994. Review of Financial Studies, 7, 631–651), our results show that the frequency of trades has a high explanatory power for return volatility. However, contrary to their finding, we find that average trade s...

Accurate volatility predictions are crucial for the successful implementation of risk management. The use of high frequency data approximately renders volatility from a latent to an observable quantity, and opens new directions to forecast future volatilities. Our goals in this paper are: (i) to select an accurate forecasting procedure for predicting volatilities based on high frequency data fr...

Article history: Received 11 October 2012 Received in revised form 3 November 2014 Accepted 3 November 2014 Available online 11 November 2014 In this paper, we investigate the dynamic response of stock market volatility to changes in monetary policy. Using a vector autoregressive model, our findings reveal a significant response of stock returns and volatility to monetary policy shocks. While t...

This study investigates the day of the week effect on the volatility of major stock market indexes for the period of 1988 through 2002. Using a conditional variance framework, we find that the day of the week effect is present in both return and volatility equations. The highest volatility occurs on Mondays for Germany and Japan, on Fridays for Canada and the United States, and on Thursdays for...

This study examines the relationships between stock fundamental ratios and idiosyncratic volatility from 1993 to 2010 for Australian Securities Exchange listed companies. The portfolio analysis results show that high idiosyncratic volatility companies tend to be small (measured by size), highly leveraged (measured by interest cover ratio), low profitability (measured by return on equity and ear...

We discuss the possibility of obtaining model-free bounds on volatility derivatives, given present market data in the form of a calibrated local volatility model. A counter-example to a wide-spread conjecture is given. keywords: local vol, Dupire’s formula; MSC: 91G99; JEL: G10.

Inspired by the recent literature on aggregation theory, we aim at relating the long range correlation of the stocks return volatility to the heterogeneity of the investors’ expectations about the level of the future volatility. Based on a semi-parametric model of investors’ anticipations, we make the connection between the distributional properties of the heterogeneity parameters and the auto-...

There is a growing literature on implied volatility indices in developed markets. However, no similar research has been conducted in the context of emerging markets. In this paper, an implied volatility index (GVIX) is constructed for the fast developing Greek derivatives market. Next, the properties of GVIX are explored. In line with earlier results, GVIX can be interpreted as a gauge of the i...

This paper describes the implied volatility function computed from options on the Italian stock market index between 1995 and 1998 and tries to find out potential explanatory variables. We find that the typical smirk observed for S&P500 stock index characterizes also Mib30 stock index. When potential determinants are investigated by a linear Granger Causality test, the important role played by ...