Features of Financial Returns Modelling Price Volatility Forecasting Standard Deviations The Accuracy of Autocorrelation Estimates Testing the Random Walk Hypothesis Forecasting Trends in Prices Evidence Against the Efficiency of Futures Markets Valuing Options Appendix: A Computer Program for Modelling Financial Time Series.

Modelling Financial Time Series

This paper discusses the commonly used methods for testing option pricing models, including the Black-Scholes, constant elasticity of variance, stochastic volatility, and jump-diffusion models. Since options are derivative assets, the central empirical issue is whether the distributions implicit in option prices are consistent with the time series properties of the underlying asset prices. Three relevant aspects of consistency are discussed, corresponding to whether time series-based inferences and option prices agree with respect to volatility, changes in volatility, and higher moments. The paper surveys the extensive empirical literature on stock options, options on stock indexes and stock index futures, and options on currencies and currency futures.

Testing Option Pricing Models

This paper offers two main innovations. First, we construct a global fear index (GFI) for the COVID-19 pandemic to support economic, financial, and policy analyses in this area. Second, we demonstr...

https://www.tandfonline.com/doi/pdf/10.1080/1540496X.2020.1785424

Constructing a Global Fear Index for the COVID-19 Pandemic

Motivated by the COVID-19 pandemic, we examine the role of uncertainty due to infectious diseases in predicting energy market volatility using the new dataset on Equity Market Volatility-Infectious Diseases (EMV-ID). We find that the new measure of market uncertainty is a good predictor of energy market volatility in both in-sample and out-of-sample tests. These results have implications for portfolio diversification strategies, which we set aside for future research.

/pdf/uncertainty-due-to-infectious-diseases-and-energy-market-59hv7lsyp1.pdf

Uncertainty Due to Infectious Diseases and Energy Market Volatility

This paper summarizes the effects of deregulation of restrictions on bank entry and expansion on the real economy. The evidence suggests that following state-level deregulation of restrictions on branching, state economic growth accelerated. This better growth performance was especially pronounced in the entrepreneurial sector. In addition to faster growth, macroeconomic stability improved with interstate deregulation that allowed that banking system to integrate across state lines. This deregulation reduced the sensitivity of state economies to shocks to their own banks’ capital.

The Real Effects of U.S. Banking Deregulation Commentary

The aim of this paper is to investigate the behavior of implied volatility in the form of day-of-the-week, year-of-the-month and surround the expiration of options. The persistence of volatility is modeled in ARCH/GARCH type framework. The empirical results have shown significant effects of the day-of-the-week, month-of-the-year and day of options expiration. The positive significant Monday effect explains that India VIX rises significantly on the initial days of the market opening, and the significant negative Wednesday effect shows that expected stock market volatility fall through Wednesday-Friday. Moreover, the study reveals the fact on options expiration, the evidence shows that India VIX fall significantly on the day of expiration of European call and put options. The March and December months have reported significant negative impact on the volatility index. Certainly, this kind of results holds practical implication for volatility traders, and helps to the market participant in hedging and pricing of options.

The Behavior of Option’s Implied Volatility Index: a Case of India VIX

In this article, the information content of implied volatility is studied at sub-periods (i.e., pre- and post-crises of 2007–09). The main objective is to judge the predictive power of implied vola...

On the Relationship of Ex-ante and Ex-post Volatility: A Sub-period Analysis of S&P CNX Nifty Index Options:

\nPurpose\nIn recent times, sustainable investment gaining much attention within the investors’ community and it is broadly driven by environmental, social and governance (ESG) factors. This study aims to examine the ESG-based sustainability index and economic policy uncertainty (EPU).\n\n\nDesign/methodology/approach\nCorporate sustainability assessment procedure yields Dow Jones sustainability indexes (DJSIUS) and ESG compliant firms become a member of such indexes. To uncover the effects of policy uncertainty as follows: the study considers EPU index, equity market policy uncertainty index, economic and political events for the period 2000–2017. The authors present the study using a conditional volatility framework.\n\n\nFindings\nThe correlation between the DJSIUS and policy uncertainty appears to be negative and statistically significant. It is apparent from the results that policy uncertainty does contain important ESG factors that explain the sustainable investment in US firms. Moreover, the stock market boom, credit crunch, Lehman collapse and fiscal crises have shown significant adverse effects on the sustainability index. More importantly, it is seen that investors’ sustainable investing considers presidential election years for portfolio planning; the uncertainty associated with the election years has also shown a negative impact on the sustainable returns.\n\n\nPractical implications\nFirst, sustainability is essential for the long-term stakeholders’ wealth maximization under governments’ policy uncertainty such as constrained resources, demographic and climate-change-policy, societal expectations, public-policies, regulatory structure. Second, EPU creates new opportunities and risks for sustainable firms and sustainable investing.\n\n\nOriginality/value\nThe study is novel in which the authors present the effects of uncertainty on socially responsible investing.\n

On the relationship between policy uncertainty and sustainable investing

This study examines the impact of scheduled macroeconomic announcements on the option’s implied volatility index in the emerging market. The macroeconomic indicators considered are RBI monetary policy statements, the consumer price index, wholesale price index, index of industrial production, the employment rate and gross domestic product (GDP growth rate). The study reveals that during non-announcement periods the implied volatility index (India VIX) increases significantly. Once results are announced, uncertainty is resolved and the India VIX returns to normal levels. It confirms that the India VIX declines significantly following scheduled GDP news, but rises significantly on the announcement of monthly inflation rates (WPI). Indeed, the joint effect of the announcements relating to monetary policy, the industrial output, employment rate and GDP is found to be statistically significant (and negative).JEL Classification:E52, E58, G12, G14

Macroeconomic Announcements and the Implied Volatility Index: Evidence from India VIX:

Many business domains are benefitted with the fast diffusion of Information Communication Technology (ICT) -enabled platforms in society. But, ICT-enabled services have not received similar popularity across all domains despite rapid growth in ICT-based services. In the area of property and casualty insurance, the ICT adoption rate has been slow compared to other domains. The earlier literature in the domain attributed it to the product complexity. This paper argues that the impact of ICT-enabled platforms may have different outcomes on property and casualty insurance consumption due to risk aversion. In insurance literature, risk aversion has been proxied by many factors. As per the literature, secondary education has a positive impact on PCI (Property & Casualty Insurance) consumption while tertiary education has a negative impact on PCI consumption. In the context, this current study has empirically tested the impact of ICT-enabled platforms on PCI consumption in emerging markets and developing countries. The study found that secondary education has no significant impact on adoption of ICT platforms. However, tertiary education reduces the negative impact of ICT-enabled platform whereas Uncertainty Avoidance Index (UAI) increases the magnitude of negative impact of ICT adoption on PCI consumption.

Imlak Shaikh

Papers

The Behavior of Option’s Implied Volatility Index: a Case of India VIX

On the Relationship of Ex-ante and Ex-post Volatility: A Sub-period Analysis of S&P CNX Nifty Index Options:

On the relationship between policy uncertainty and sustainable investing

Macroeconomic Announcements and the Implied Volatility Index: Evidence from India VIX:

Information Communication Technology-Enabled Platforms and P&C Insurance Consumption: Evidence from Emerging & Developing Economies