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

Monetary policy uncertainty and gold price in India: Evidence from Reserve Bank of India's Monetary Policy Committee (MPC) review

This article investigates the relationship between implied, realised and historical volatility by taking into account measurement errors. In this study, call and put implied volatility is calculated from June 2001 to April 2012, using non-overlapping 131 monthly at-the-money samples. The study shows analyses of predictive power of call and put implied volatility separately using simultaneous equation approach. The present work also accounts for the error-in-variable problem which is controlled using instrumental variable technique. Two-stage least squares (2SLS) and three-stage least squares (3SLS) estimations have been performed in order to obtain the consistent estimate of implied volatility. Instrumental variable estimation procedure uncovers that implied volatility has been measured with error. Indeed, the study also accounts for the endogenous nature of the call and put implied volatility dealing with full information maximum likelihood (FIML) estimation of the entire system. Ordinary least squares (...

A Simultaneous Equation Approach on the Relationship between Implied, Realised and Historical Volatility:

PurposeCovid-19 sparked new interest in consumer financial resilience (CFR) amongst regulatory authorities, financial institutions, policymakers and the academia. No financial and health crisis has been worse than Covid-19, erasing the growth momentum of nations at all development stages. This study measures consumers' current financial resilience and future expectations within India's emerging market and its likely response to policy measures.Design/methodology/approachCFR is investigated using individual household data on economic state, employment, income and savings from the Reserve Bank of India's consumer confidence survey. The empirical approach is based on the temporal time-series data with mixed frequency regression. Consumers' current and future expectation indices appear as the regressand, whereas credit-deposit ratio, credit outstanding, number of bank accounts and digital transactions act as main regressors.FindingsThe response of consumers' current situation is 3.50 times higher than that of their future expectations. This implies that a rise in the credit-deposit ratio and credit line positively affects CFR. In contrast, a higher number of bank accounts, a proxy for financial inclusion, adversely affect consumer's well-being possibly owing to the government's failure to provide financial support through banking networks. Digital payments (value) positively affect consumers' current situation and future expectations.Practical implicationsThe results of this study inform policy formulation for enhancing financial resilience. Consumer sentiment index acts as a proxy for CFR.Originality/valueFinancial resilience is a concern for policymakers. This study is one of the first studies linking CFR with financial inclusion, credit creation and digital financial capability.

Measuring financial resilience with consumer sentiment data from India

This paper investigates how India VIX responds to the scheduled macroeconomic announcements. The study takes into account various macroeconomic indicators like national product, employment rate, industrial production, inflation rates, fed's monetary policy statement, corporate confidence, balance of payment and international reserve. Results uncovers that VIX is significantly attributed toward the macroeconomic indicators. We find that India VIX is more responsive to the GDP and employment rate. We also find that VIX rises significantly prior to the scheduled announcement and remains more normal on the new releases. The fed's monetary policy also plays great role in determining the portfolio selection. The empirical finding reveals that market participants consider India VIX as the market expectation about the future volatility. In addition, the joint effect of more than one announcement on VIX found to be significant.

The Information Content of Macroeconomic News

There is a shift in focus from traditional accounting-based performance measures to the new value-based performance measures. With the rising focus on value-based performance measures which are derived from the long-term goal of wealth maximization as opposed to the short-term approach of profit maximization, EVA and FCF are promising indicators. Many past researches have shown that value-based performance indicators (especially EVA) are superior to traditional indicators like EPS, ROE, ROA, etc. Traditional indicators do not capture value creation and since they are accounting based, they can be manipulated by the managers. Therefore using them as firms’ performance measure is not in the best interest of the shareholders. The purpose of this study is to understand the various value-based performance measures and empirically verify the conceptual equivalence of free cash flow (FCF) and economic value added (EVA). For this, a sample of 30 firms listed in BSE SENSEX is taken and their FCF and EVA are calculated for the period of 5 years, from 2011 to 2015. The results of this calculation are analyzed using correlation and regression analysis. The descriptive analysis shows that there is a strong correlation between FCF and EVA. The regression analysis also shows that EVA and FCF are positively related which means that both EVA and FCF give similar results regarding firms’ performance. The discounting of appropriately defined cash flows (FCF) is conceptually equivalent to discounting economic profits (EVA) for performance and decision-making process. This study has empirically tested the conceptual equivalence of the two measures.

Imlak Shaikh

Papers

Monetary policy uncertainty and gold price in India: Evidence from Reserve Bank of India's Monetary Policy Committee (MPC) review

A Simultaneous Equation Approach on the Relationship between Implied, Realised and Historical Volatility:

Measuring financial resilience with consumer sentiment data from India

The Information Content of Macroeconomic News

On the Examination of Value-Based Performance Measures: Evidence from Indian Firms