This note explores the analogy between the dynamics of the interest rate term structure and the implied volatility surface of a stock. In particular, we prove an impossibility theorem conjectured by Steve Ross. Implied volatility and smile asymptotics and long rates JEL Classification: G13 Mathematics Subject Classification (2000): 60G44, 91B70

The aim of this study was to investigate the asymmetric effects of exchange rate fluctuations on Stock index of Tehran Stock Exchange. For this purpose, we first calculated the exchange rate fluctuations using model General Autoregressive Conditional Heteroskedastic (GARCH), and then the effect of these fluctuations on the Stock index of Tehran Stock Exchange was estimated using the Generalized...

This paper aims at testing the influence of Subprime Crisis on Chinese stock market returns. By means of newly proposed time series spatial analysis methodology, we investigate the dominance behavior of daily returns on both Shanghai Stock Exchange Composite Index and Shenzhen Stock Exchange Component Index between before and after the crisis. Little spatial dominance could be found, even consi...

This paper analyzes the stability of the exchange rate in an economy with noise traders. Noise trading is restricted to agents investing in the domestic stock market. The agents pricing foreign exchange hold rational expectations. Monetary policy is affected by the behavior of investors in the domestic stock market and in turn affects fundamental stock evaluations as well as noise trading. We s...

This paper investigates the price adjustment and lead-lag relations between returns on five sizebased portfolios in the Taiwan stock market. It finds evidence that the price adjustment of smallstock portfolios is not slower than that of large-stock portfolios. Additionally, limited evidence supports a positive leading role of large-stock portfolio returns over small-stock portfolio returns. The...

Open-market repurchases reduce the supply of a stock’s shares in the market. Japanese stock repurchase data allows us to successfully isolate the supply effect from information effects of the stock repurchase. We focus on stock price behavior during the actual repurchase period when no new information is released and find that the excess stock returns are significantly positive only during actu...

Using the Dow Jones Industrial Average Index record breaking days as a proxy for market wide attention, we show that as the aggregate stock market intensifies investor attention, stock market response to individual firms’ earnings announcements significantly increases. We hypothesize that there are many channels for the attention spill-over effect and document strong supportive evidence of one ...

Previous work by has shown that lumpy investment models well characterize individual expenditures on durables, in particular automobiles. In that class of models, a higher level of uncertainty generally implies that the household should tolerate a larger imbalance between the actual stock of the durable and the target stock before closing it by buying and/or selling. Then, if the level of uncer...

This paper provides preliminary evidence that interest groups reduce both the level and the volatility of returns on a national stock market. These findings are robust to model specifications that include traditional growth regression “policy” variables as well as political, economic, and financial institutions variables. The estimated magnitude of the relationship between interest group activi...