Volatility is an integral and inescapable variable of financial engineering, modeling, and finance theory itself Classical financial economics proxies volatility for risk itself, as it becomes difficult to predict future price realizations of a given asset when that asset exhibits significant price volatility over a given time. However, the nature of volatility as it is explained by classical f...

A balance sheet structure including fixed assets, net working capital and risky long-term debt leads to a model for option pricing of the firm’s equity. Each of the financial components constitutes a source of risk. A hedge based on three distinct options and the stock enables risk neutral valuation and avoids the problems of lack of tradability of the assets and market incompleteness reflected...

The present study aimed at investigating the existence of long memory properties in ten emerging stock markets across the globe. When return series exhibit long memory, it indicates that observed returns are not independent over time. If returns are not independent, past returns can help predict future returns, thereby violating the market efficiency hypothesis. It poses a serious challenge to ...

We present results of an experiment on expectation formation in an asset market. Participants to our experiment must provide forecasts of the stock future return to computerized utility-maximizing investors, and are rewarded according to how well their forecasts perform in the market. In the Baseline treatment participants must forecast the stock return one period ahead; in the Volatility treat...

This paper examines the hypothesis that both stock returns and volatility are asymmetrical functions of past information derived from domestic and US stock-market news. By employing a double-threshold regression GARCH model to investigate four major index-return series, we find significant evidence to sustain the asymmetrical hypothesis of stock returns. Specifically, evidence strongly supports...