Unexpected Volatility Research Articles

State-dependent volatility feedback effect in the ICAPM

Considering that risk-averse investors revise their expectations in response to changes in both expected and unexpected volatility, we hypothesize and demonstrate that an unexpectedly high (low) volatility shock causes an increase (decrease) in risk premium. Using a novel approach to endogeneity issues, we utilize a state dependent, ICAPM to measure volatility effects on risk-return relationships. Our empirical results show that the volatility feedback effect strengthens (attenuates) the positive risk-return relation under bad (good) news. Furthermore, the volatility feedback effect under the combined conditions of bad news and a high unexpected volatility causes an extremely heightened level of the risk-return tradeoff.

Dynamic mixed models with heterogeneous covariance components using multivariate GARCH innovations and the Dirichlet process mixture

This paper presents innovative strategies for correlated data analysis using dynamic mixed effects models to account for the autoregressive conditional-heteroscedasticity of innovations and cross-sectional dependence. In a multivariate setting, the traditional modeling scheme was extended to time-varying components of variances and covariances by initiating the heterogeneous GARCH model. We propose a Bayesian semi-parametric approach by utilizing the centered Dirichlet process as priors for the heterogeneity effects involved in the mean structure. We present a stochastic clustering strategy to distinguish similar patterns of covariates. The Hamiltonian Monte Carlo technique is used to ease the computation of time-series equations for variances and covariances with higher efficiency. We conduct comprehensive simulation studies to examine model features, especially in cluster-wise settings. We adopt the maximal overlap discrete wavelet transforms to isolate short- and long-run sample information for practical applications. The transformation facilitates analyzing the effect of high-frequency or trend variation in macroeconomic factors. We illustrate the advantage of our proposed modeling methodology in the empirical studies by investigating the short-run impacts of macroeconomic events on economic growth and its prediction accounting for the unexpected volatility in the financial market of some selected countries.

Volatility feedback effect and risk-return tradeoff

Using the two alternative measures of the ex-ante unexpected volatility shock, we show that the volatility feedback effect plays an important role in the intertemporal risk-return tradeoff. The empirical results indicate that the volatility feedback effect reinforces the positive risk-return relation conditional on bad market news but attenuates the relation under good market news. The results provide strong evidence that an extremely heightened risk-return tradeoff caused by a high level of volatility feedback effect might lead to a market crash, even with no macroeconomic uncertainties in the markets. Also, the results show that the asymmetric volatility feedback effect is attributable to the negative correlation between the concurrent volatility and a price change. The state-dependent volatility feedback effect is observed for different market conditions such as high and low market sentiments and business cycles.

The pricing of unexpected volatility in the currency market

Many recent papers have investigated the role played by volatility in determining the cross-section of currency returns. This paper employs two time-varying factor models: a threshold model and a Markov-switching model to price the excess returns from the currency carry trade. We show that the importance of volatility depends on whether the currency markets are unexpectedly volatile. Volatility innovations during relatively tranquil periods are largely unrewarded in the market, whereas during the unexpected volatile period, this risk has a substantial impact on currency returns. The empirical results show that the two time-varying factor models fit the data better and generate a smaller pricing error than the linear model, while the Markov-switching model outperforms the threshold factor models not only by generating lower pricing errors but also distinguishes two regimes endogenously and without any predetermined state variables.

The impact of COVID-19 on the evolution of online retail: The pandemic as a window of opportunity

Pandemic-related shocks have induced an unexpected volatility into the evolution of online sales, making it difficult for retailers to cope with frequently occurring, drastic changes in demand. Relying on a socio-technical approach, the purpose of this paper is to (a) offer a deeper insight into the driving forces of online sales during the pandemic, and (b) investigate whether pandemic-related shocks accelerate the long-term growth of online retail. Novel, high-frequency data on GPS-based population mobility and government stringency is used to demonstrate how time spent in residential areas and governmental restrictions drive the monthly evolution of online sales in 23 countries. We deconstruct these effects into three main phases: lure-in, lock-in, and phase-out. Lastly, using time series analysis, we show that the pandemic has induced a level shift into the long-term growth trend of the online retail sector in the majority of countries investigated.

Effects of investor sentiment and country governance on unexpected conditional volatility during the COVID-19 pandemic: Evidence from global stock markets

This paper first investigates the relationship between investor sentiment, captured by internet search behaviour, and the unexpected component of stock market volatility during the COVID-19 pandemic. According to data on 12 major stock markets, our research indicates a positive correlation between the Google search volume index on COVID-19 and the unexpected volatility of stock markets. The result suggests that greater COVID-19-related investor sentiment during this pandemic is associated with higher stock market uncertainty.Our study further examines whether country-level governance plays a role in protecting stock markets during this pandemic and reveals that the unexpected conditional volatility is lower when a country's governance is more effective. The impact of investor sentiment and country governance on unexpected volatility after the initial shock of COVID-19 is also investigated. The findings demonstrate the importance of establishing good country-level governance that can effectively reduce stock market uncertainty in the context of this pandemic, and support continual policy development related to investor protection.

Forecasting volatility by integrating financial risk with environmental, social, and governance risk

AbstractThe study aims to verify whether the consideration of a risk measure based on environmental, social, and governance (ESG) factors can reduce the difference between the ex‐ante financial risk and ex‐post volatility of financial assets. The statistical models are run on 17,996 firm‐year observations (3332 active firms from 55 countries and 10 industries, listed on the ECPI Global Ethical Equity index) in 2007–2015. According to our main results, the forecasting effectiveness of traditional financial risk measures can be improved by integrating financial risk with an ESG risk measure that considers the ESG entropy. We found that the dispersion of ESG scores within a country, sector and year is a risk factor that would be helpful in predicting the volatility of financial assets. Other similar long‐run risk measures, such as issuers' credit ratings, do not reveal the same forecasting power. By reducing unexpected volatility, especially in the medium term, the ESG risk measure provides investors and fund managers with a useful metric for decision making.

ENVIRONMENTAL VOLATILITY AND EFFECTIVENESS OF EDUCATIONAL PLANNING: THE NIGERIA EXPERIENCE

The school structures in old times used to be situated in an isolated environment because it is believed that such serenity was conducive for learning. Unfortunately those old outskirt has become city which is now vulnerable to interference in a way that things which were not experience in school areas before have become the norms. Recently, Nigeriahas witnessed unexpected volatility which has affected her education system. Attacks such as kidnapping, suicide bombing, insurgencies, school-based violence, banditry, religion crisis, hoodlum attacks, break-in and vandalism of school properties by hoodlums and drug addicts to attacks involving burning schools or killing, injuring, kidnapping, detaining or torturing students, teachers and academics.Pandemic such as Ebola and covid-19represents a huge threat to security as it usually claim lives and destroys few available school infrastructures. The consequences which leads high drop-out rates, reduction in enrolment and lower teaching quality worsen effective educational planning and sustainable national development such that if pro-active measures are not put in place, long term danger awaits the quality of labour force and human capital needed for a sustainable economy. Ensuring education continuity and safe school in a volatile environment is of a great concern to education planners such that such either internal or external influences that contributes to unstable or violent environment will not affect the effectiveness of planning education (Nwosu et al., 2019; GCPEA, 2017; Akintunde and Musa, 2016).To achieve the goals of education, it has to evolve in an environment free of violence as learning rates fluctuate with the volatility of the environment. Disruptions in education can reduce the likelihood that students will return to school, even when they re-open, and can, in the long term, impact individual earnings and the country’s ability to rebuild its national economy.

Unexpected Information Demand and Volatility Clustering of Chinese Stock Returns: Evidence from Baidu Index.

This paper employs the Baidu Index as the novel proxy for unexpected information demand and shows that this novel proxy can explain the volatility clustering of Chinese stock returns. Generally speaking, these findings suggest that investors in China could take advantage of the Baidu Index to obtain information and then improve their investment decision.

The volatility surprise of leading cryptocurrencies: Transitory and permanent linkages

There is scarce literature examining the volatility linkages among leading cryptocurrencies, and none exists on the linkages among unexpected volatility, called ‘volatility surprise’. To address this literature gap, we build on the concept of volatility surprise and examine the causal linkages among the volatility of leading cryptocurrencies via the frequency-domain test of Bodart and Candelon (2009), discriminating between transitory and permanent causalities. Permanent shocks are more important in explaining the Granger-causality that does not necessarily emanate from the largest, Bitcoin, over short horizons, whereas transitory shocks dominate the causality across smaller cryptocurrencies over long horizons.

AN ESTIMATED DSGE MODEL WITH A DEFLATION STEADY STATE

Benhabib et al. [(2001) Journal of Economic Theory 96, 40–69] argue that there exists a deflation steady state when the zero lower bound on the nominal interest rate is considered in a Taylor-type monetary policy rule. This paper estimates a medium-scale DSGE model with a deflation steady state for the Japanese economy during the period from 1999 to 2013, when the Bank of Japan conducted a zero interest rate policy and the inflation rate was almost always negative. Although the model exhibits equilibrium indeterminacy around the deflation steady state, a set of specific equilibria is selected by Bayesian methods. According to the estimated model, positive shocks to households’ preferences and wage markup, and a negative shock to monetary policy do not necessarily have an inflationary effect, in contrast to a standard model with a targeted-inflation steady state. An economy in the deflation equilibrium could experience unexpected volatility because of sunspot fluctuations, but it turns out that sunspot shocks have a limited effect on Japan’s output fluctuations and rather contribute to stabilizing the economy after the global financial crisis.

Risk, uncertainty and stock returns predictability – a case of emerging equity markets

PurposeThis paper aims to investigate the predictability of stock returns under risk and uncertainty of a set of 11 emerging equity markets (EEMs) during the pre- and post-crash periods.Design/methodology/approachListed indices are considered to serve the proxy of stock markets with a structural break in data for the period: 2000-2014. As preliminary results highlight the significant autocorrelations in stock returns, Threshold-GARCH (1,1) model is used to estimate the conditional volatility, which is further decomposed into expected and unexpected volatility.FindingsResults highlight that the volatility has symmetric impact on stock returns during the pre-crash period and asymmetric impact during the post-crash period. While testing the relationship of stock returns, a significant positive (negative) relationship is found with expected volatility during the pre-crash (post-crash) periods. The stock returns are found positively related to unexpected volatility.Research limitations/implicationsBusiness, political and other market conditions of sample stock markets are fundamentally different. These economies were liberalized in different years, which may affect the degree of integration with international equity markets.Practical implicationsThe findings highlight that investors consider the impact of expected volatility in forecasting of stock returns during the growth period. They realize returns in commensurate to risk of their portfolios. However, they significantly reduce their investments in response to expected volatility during the recession period. The positive relationship between stock returns and unexpected volatility highlights the fact that investors realize extra returns for exposing their portfolios to unexpected volatility.Originality/valuePioneer efforts are made by using T-GARCH (1,1) procedure to analyse the problem. Given the emergence of emerging equity markets, new insight in dynamics of stock returns provide interesting findings for portfolio diversification under risk and uncertainty.

Stock Market Contagion: a New Approach

We develop a new approach to assess stock market contagion that involves examining whether higher unexpected volatility during extreme market downturns of the originating market is associated with increased return co-exceedance with the recipient market. Using daily data from 1999 to 2014 and quantile regressions with a wide set of control variables, we find evidence of contagion from the U.S. stock market to the six largest developed stock markets (Japan, United Kingdom, France, Germany, Hong Kong, and Canada). In addition, our results show that contagion is not solely a crisis-specific event, because we find contagion present over the whole sample period. Interestingly, the return co-exceedances during extreme market downturns are not driven by fundamentals, further supporting our results regarding contagion.

Expanding the Structural Motif Landscape of Heterometallic β-Diketonates: Congruently Melting Ionic Solids.

The first example of ionic β-diketonates in which both the cation and anion are octahedral coordinatively saturated metal diketonate moieties are reported. Heterometallic tin-transition-metal heteroleptic diketonates were obtained through solid-state redox reactions and are formulated as {[SnIV(thd)3]+[MII(hfac)3]-} (MII = Mn (1), Fe (2), Co (3); thd = 2,2,6,6-tetramethyl-3,5-heptanedionate, hfac = hexafluoroacetylacetonate). X-ray single-crystal structural investigations along with DART mass spectrometry, multinuclear NMR, and magnetic susceptibility measurements have been used to confirm an assignment of metal oxidation states in compounds 1-3. Ionic compounds were found to melt congruently at temperatures below the decomposition point. As such, they represent prospective materials that can be utilized as ionic liquids as well as reagents for the soft transfer of diketonate ligands. An unexpected volatility of ionic compounds 1-3 was proposed to occur through a transport reaction, in which the transport agent is one of the products of their partial decomposition in the gas or condensed phase.

Margin of safety of pentylene glycol derived using measurements of cutaneous absorption and volatility

The safety assessment of pentylene glycol (PG) has been based on a bioavailability extrapolated from those of other 1,2-glycols or an assumed 100% absorption. To make a better safety assessment and an accurate calculation of the margin of safety (MoS), the skin penetration of PG present in a commercially available sunscreen was measured in pig skin at different exposure durations. The mass balance of PG decreased with increasing exposure durations, from 98% (1 h) to 29% (24 h) and the amount of PG detected in the skin wash decreased over time from 93% to 3%. The decrease in mass balance was attributed to an unexpected volatility of PG, which was confirmed in additional experiments. The maximum bioavailable amount of PG was 123 μg/cm2 after 24 h and was considered to be worst case scenario (10 mg/cm2 i.e. 5-fold the recommended application standard dose, 2 mg/cm2). MoS values for the application of a standard dose of sunscreen after 1–24 h exposure were 140–671 in adults and, if calculated for children ratios, 87–217 Based on the available toxicological data for PG in comparison to the amounts determined to be potentially bioavailable, PG in the test sun protection product SPF 50 + does not show any safety concerns for daily usage at the recommended dosage of 2 mg/cm2 or lower.

Stock market contagion in Central and Eastern Europe: unexpected volatility and extreme co-exceedance

We examine whether there is contagion from the US stock market to six Central and Eastern European stock markets. We use a novel measure of contagion that examines whether volatility shocks in the US stock market coupled with negative returns are followed by higher co-exceedance between US and emerging stock markets. Using our approach and controlling for a set of market-related variables, we show that during the period from 1998 to 2014, financial contagion occurred, that is, unexpected negative events in the US market are followed by higher co-exceedance between US and Central and Eastern European stock markets. Even though contagion is stronger during the financial crisis, it also occurs in tranquil times.

An historic and scientific study of the properties of metal(III) tris-acetylacetonates

Historically, metal acetylacetonates are significant since they were among the earliest metal compounds which were recognized as what later became known as coordination compounds. Additionally, they were significantly investigated during WWII as potentially useful in the separation of isotopes, especially of uranium because of their unexpected volatility. Consequently, much research was carried out over the years—a good deal of which was of suspect validity, which unfortunately cannot be checked because very little information was published on the syntheses and crystallization methods used in the preparation of the crystalline samples. Here, we report our efforts to clean the slate by reporting on those of Al(III), Mn(III), Co(III), Cr(III), Fe(III), V(III), and Ti(III). These studies were carried out with crystalline samples obtained from a wide variety of solvents and over the range 296–100 K in attempts to reproduce, verify, and correct, at times, the claims made in print. Our results, covering over 100 samples, are detailed below.

Investigating Impact of US, Europe, Frontier and BRIC Stock Markets on Indian Financial Stress Index

The emerging markets are slowly opening up their respective financial markets to foreign investments, thereby making the latter markets more sensitive to cross-market information transmissions. There are different transmission mechanisms ranging from trade related to financial linkages. However, statistically, both price discovery and conditional volatility act as transmission mechanisms, whereby information in one stock market has an impact on another. In this regard, the present study attempts to empirically analyse the impact of global information transmissions, i.e., stock market returns and conditional volatility on overall Indian financial stress and its various sub-components by employing different econometric models comprising Johanson Cointegration, Vector Autoregression and its various counterparts, Component GARCH (1,1) model and multivariate OLS regression models ranging from October 2003 to October 2014. The study firstly constructed Indian financial stress index owing to non-existence of a standardised index. The results reported that the one month lagged returns in the BRIC stock markets have an impact on the financial stress index of India. The stress in the Indian financial system responds statistically signifi cantly to the Brazilian and Chinese market returns, with a greater degree of integration after two months. A statistically signifi cant impact of the shortrun volatility has also been observed running from the European markets to the Indian financial system contemporaneously. Furthermore, unexpected volatility in the BRIC markets also has an impact on the Indian financial stress contemporaneously as well as dynamically. The present study provides an insight to the international investors regarding the response of Indian financial system and its sub-components toward global information transmissions.

Competitive Threats, Constraint, and Contagion in the Multiunit Firm

Do unexpected events experienced by one line of business adversely affect other lines of business in diversified firms? We use fine-grained data on the film industry in the United States to show that such contagion frequently occurs when a distributor opens a film in theaters and concurrently releases an older title to home video: Being exposed to a competitive threat—a period of unexpected volatility—in the theatrical market at the time of a film opening leads the distributor to suffer a loss in sales on the concurrent home video release. Further analysis revealed that managers responded to these competitive threats by intensifying the advertising and promotion of their films in theaters, suggesting that they diverted resources and attention away from home video. Our results therefore suggest that the effects of unexpected events do spread across lines of businesses within firms and consequently that resource constraints may limit the ability of firms to engage effectively in multiple markets.

President's Page

Times have certainly changed since I agreed to run for SEG president. Eighteen months ago, we were looking at $100 per barrel of oil, and as I look at the ticker at the time of this writing, it is running at just under $45 per barrel. This is up from a six-year low of less than $40 per barrel in August. The sudden drop in prices and the unexpected volatility in the market over the past year have the industry reeling, and many of our corporate and individual members are suffering. According to an August article in The Houston Chronicle, more than 146,000 energy-industry jobs have been cut in the past year worldwide. Many who have lost their jobs or taken pay cuts are SEG members.