Mean Of Stock Returns Research Articles

OPTION PRICING IN MARKETS WITH INFORMED TRADERS

The objective of this paper is to introduce the theory of option pricing for markets with informed traders within the framework of dynamic asset pricing theory. We introduce new models for option pricing for informed traders in complete markets, where we consider traders with information on the stock price direction and stock return mean. The Black–Scholes–Merton option pricing theory is extended for markets with informed traders, where price processes are following continuous-diffusions. By doing so, the discontinuity puzzle in option pricing is resolved. Using market option data, we estimate the implied surface of the probability for a stock upturn, the implied mean stock return surface, and implied trader information intensity surface.

Impact of democratic electoral process on Borsa Istanbul

According to the Efficient Market Hypothesis, there is no possibility to predict price movements in the markets which does not allow investors to obtain return above average (abnormal return). However, deviation from the mean of stock returns is observed and patterns appeared during certain periods, so-called anomalies. In this context, the initial aim of this paper is to figure out the relationship between elections and market’s movements by determining the influence of 12 elections (general elections, local elections, by-elections and referendum) that took place in Turkey after 2000 on BIST 100 Index. In the overview, negative and statistically significant abnormal returns are observed days around (-15,+15) elections that took place in Turkey after 2000 by employing Event Study metedology which is widely used in finance literature. Keywords: BIST 100, event study, democratic elections. JEL Classification: G14, G35

Evaluation of Return Mean and Stock Surplus Return Mean with Two Approaches of Traditional Risk and Downside Risk

This study aims to compare performance of indexes of traditional risk (variance and traditional beta) and indexes of downside risk (semi-variance and downsize beta) to evaluate risk and better evaluation of return and stock surplus return in Tehran stock exchange market. The statistical sample contains 60 firms from 2005 to 2009 with panel data pattern. To test the comparison between the two indexes of traditional and downside risk, linear regression has been used. The results show that downside risk evaluates stock return mean better than traditional risk does. In addition, downside risk evaluates stock surplus return better than traditional risk.

Structural Breaks in Stock Returns Driven by Large Shocks

This paper employes a parametric model of structural breaks in the mean of stock returns which allows them to be endogenously driven by large positive or negative stock market return shocks. These shocks can be taken to reflect important market announcements, monetary policy regime shifts and/or changes in business conditions which affect stock market. The model assumes that both the timing and size of breaks are stochastic. The last property of the model distinguishes it from models suggested in the literature to capture structural breaks or regime shifts in the mean of stock returns. Implementation of the model to the US stock market indicates that the model can successfully capture structural breaks in the mean of the aggregate return of this market. Most of these breaks are triggered by negative large return shocks. The latter can be of smaller magnitude that the positive ones. Finally, the paper shows that the model can be employed to successfully forecast future expected stock returns.

Research on the Securities Risk-Return Tradeoff in China

This paper investigates the risk-return tradeofi in the Chinese emerging stock markets. The empirical results show that the dynamic risk-return relationship is quite difierent between Shanghai and Shenzhen stock markets. A positive and statistically signiflcant risk-return tradeofi is found in Shenzhen stock market, while the conditional mean of stock return is negatively but insigniflcantly related to its conditional variance in Shanghai except for the CGARCH-M model. The variance of stock return usually has a signiflcant persistent efiect, and the asymmetric efiect is also statistically signiflcant in both markets.

Evaluation of Mean Return and Stock Surplus Return Mean with Two Approaches of Traditional Risk and Downside Risk

This study aims to compare the performance of indexes of traditional risk (variance and traditional beta) with that of indexes of downside risk (semi-variance and downsize beta) to evaluate risk and to better evaluate return and stock surplus return in the Tehran stock exchange market. The statistical sample contained sixty firms from 2005 to 2009 with a panel data pattern. To test the comparison between the two indexes of traditional and downside risks, linear regression was used. The results show that downside risk evaluates the stock return mean better than does traditional risk.

Volatility Spillovers between the US and China Stock Markets: Structural Break Test with Symmetric and Asymmetric GARCH Approaches

The paper examines the short-run spillover effects of daily stock returns and volatilities between the Standard & Poor's (S&P) 500 stock index in the US and the Shanghai Stock Exchange (SSE) index in China. First, we find that a structural break occurred in the SSE stock return mean in December 2005. Second, by analyzing modified general autoregressive conditional heteroscedasticity (GARCH)(1,1)-M models, we find evidence of a symmetric and asymmetric volatility spillover effect from the US to the China stock market in the post-break period. Third, we observe the symmetric volatility spillover effect from China to the US in the post-break period.

Can Noise Create the Size and Value Effects?

If the price of a stock differs from its intrinsic value by a random noise, then value stocks are more likely to have negative noise; they are thus more likely undervalued and have higher expected return than justified by risk. The same intuition applies to small capitalization stocks. We formally verify and explore this intuition by using a standard noise-in-price model. This intuition is different from the Jensen’s inequality effect studied by Blume and Stambaugh [Blume ME, Stambaugh RF (1983) Biases in computed returns: An application to the size effect. J. Financial Econom. 12(3):387–404]. Our model is parsimonious: the value premium as well as size premium are computed in closed form and depend on only four parameters: mean of stock return, volatility of stock return, volatility of the price-to-dividend ratio, and noise volatility. We emphasize that only a moderate volatility of price noise is needed to generate the observed value premium. However, the model cannot generate the observed size premium. This paper was accepted by Wei Jiang, finance.

The Asymmetric Relation Between Initial Margin Requirements and Stock Market Volatility Across Bull and Bear Markets

Higher initial margin requirements are associated with lower subsequent stock market volatility during normal and bull periods, but show no relationship during bear periods. Higher margins are also negatively related to the conditional mean of stock returns, apparently because they reduce systemic risk. We conclude that a prudential rule for setting margins (or other regulatory restrictions) is to lower them in sharply declining markets in order to enhance liquidity and avoid a depyramiding effect in stock prices, but subsequently raise them and keep them at the higher level in order to prevent a future pyramiding effect.

Insider trading and stock market perception of bankruptcy

There is evidence that the stock market’s first perception of a bankruptcy, indicated by a decrease in the mean of stock returns, may occur in advance of the actual filing date. In this paper, we examine insider transactions around the month when the market anticipates the bankruptcy and then around the month when the bankruptcy filing is announced. Our results show that the insiders sell their shareholdings prior to the anticipation of the bankruptcy by the investors. We also find that insiders do not sell around the filing month for firms that are perceived to be bankrupt well in advance.

The Asymmetric Relation Between Initial Margin Requirements and Stock Market Volatility Across Bull and Bear Markets

Linear regressions as well as exponential GARCH-in-mean models reveal that in the post-1934 period higher initial margin requirements associate with lower subsequent stock market volatility during normal and bull periods, but show no relationship during bear periods. Higher initial margins are also negatively related to the conditional mean of stock returns, apparently because they reduce systemic risk. These empirical regularities are consistent with the pyramiding-depyramiding framework of stock prices that U.S. Congress had in mind when it instituted margin regulation in 1934 and suggest that a prudential rule for setting margins over time would be to lower them in bear markets in order to enhance liquidity and avoid a de-pyramiding effect, but subsequently raise them and keep them at the higher level in order to prevent a future pyramiding effect.