Return volatility and trading volume: an information flow interpretation of stochastic volatility

Article Abstract:

The paper develops an empirical return volatility-trading volume model from a microstructure framework in which information asymmetries and liquidity needs motivate trade in response to information arrivals. The resulting system modifies the so-called "Mixture of Distribution Hypothesis" (MDH). The dynamic features are governed by the information flow, modeled as a stochastic volatility process, and generalize standard ARCH specifications. Specification tests support the modified MDH representation and show that it vastly outperforms the standard MDH. The findings suggest that the model may be useful for analysis of the economic factors behind the observed volatility clustering in returns. (Reprinted by permission of the publisher.)

Stochastic processes

---

Is there private information in the FX market? The Tokyo experiment

Article Abstract:

We provide evidence of private information in the foreign exchange market. The evidence comes from the introduction of trading in Tokyo over the lunch hour. Lunch-return variance doubles with the introduction of trading, which cannot be due to public information since the flow of public information did not change with the trading rules. We then exploit microstructure theory to discriminate between the two alternatives: private information and mispricing. Four key result support the predictions of private-information models. Three of these involve changes in the intraday volatility U-shape. The fourth is that opening trade causes mispricing's share in variance to fall. (Reprinted by permission of the publisher.)

Prices and rates, Pricing, Foreign exchange market

---

Decision frequency and synchronization across agents: implications for aggregate consumption and equity return

Article Abstract:

This article examines a model in which decisions are made at fixed intervals and are unsynchronized across agents. Agents choose nondurable consumption and portfolio composition, and either or both can be chosen infrequently. A small utility cost is associated with both decisions being made infrequently. Calibrating returns to the U.S. economy, less frequent and unsynchronized decision-making delivers the low volatility of aggregate consumption growth and its low correlation with equity return found in U.S. data. Allowing portfolio rebalancing to occur every period has a negligible impact on the joint behavior of aggregate consumption and returns. (Reprinted by permission of the publisher.)

Macroeconomics

Similar abstracts:

• Abstracts: Effects of personality and task strength on performance in computerized tasks. Information visualization; assisting low spatial individuals with information access tasks through the use of visual mediators
• Abstracts: Feasibility of a cash forward contract: An application to the French and Spanish potato sectors. Empirical models of meat demand: how do they fit out of sample?
• Abstracts: Divided by a common language: diversity and deception in the world of global marketing. Guest editorial
• Abstracts: Dignity and respect for all. Assurance for the future. A firm belief in awards

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.