If returns are stationary, then the risk of an asset in any time frequency can be estimated from the risk of the asset in any other time frequency through a simple linear rescaling. This implies that short-term risk carries reliable information about long-term risk, and both data frequencies and investment horizons are irrelevant when evaluating an asset’s risk. However, most series of stock re...

This paper investigates empirically the interrelationships between the daily stock market returns of the Nikkei 225, DAX and Dow Jones Industrial index. Contrary to former work this paper uses the succession of the markets in time to form different econometric models. In this way it is possible to detect causality not only from the US to foreign countries but in some cases vice versa. The obser...

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper analyzes the Corporation of Foreign Bondholders (CFB), an association of British investors holding bonds issued by foreign governm...

This paper shows that the probability of exercise of convertible bonds issued against a firm’s stock directly affects the liquidity of the stock itself. Using the ratio of absolute stock return to its dollar volume as a proxy for stock liquidity I demonstrate that there is a direct and positive relationship between conversion probability and stock liquidity while controlling for firm size, book...

This paper investigates sudden changes in volatility in the stock markets of new European Union (EU) members by utilizing the iterated cumulative sums of squares (ICSS) algorithm. Using weekly data over the sample period 1994–2006, the time period of sudden change in variance of returns and the length of this variance shift are detected. A sudden change in volatility seems to arise from the evo...

In the presence of skewness, portfolio selection requires to consider competing and conflicting objectives. We utilize polynomial goal programming to determine the optimal portfolio from emerging markets industries. The first part of this paper is concerned with an industry level analysis of the effects of portfolio selection when the skewness is taken into account. The second part of the paper...

This paper investigates the role of scheduled news announcements in explaining the transmission of volatility, both within European markets and across U.S. and European ones. To this end, a novel approach is taken by employing a set of widely followed implied volatility indices. Aggregate, regional, and individual event dummies and surprise measures for U.S. and European news announcements are ...

Article history: Received 13 December 2013 Received in revised form 26 June 2015 Accepted 3 August 2015 Available online 8 August 2015 This paper investigates stock market interdependencies between Sri Lanka and selected economies in the context of its long civil war using the Dynamic Conditional Correlation (DCC) model with monthly indices (1993–2013) and through bilateral analysis. While corr...

We ask how the potential benefits from cross-border asset trade are affected by the presence of non-traded income risk in incomplete markets. We show that the mean consumption growth may be lower with full integration than in financial autarky. This can occur because: the hedging demand for risky high-return projects may fall as the investment opportunity set increases, and precautionary saving...

Article history: Received 17 August 2014 Received in revised form 16 February 2015 Accepted 30 March 2015 Available online 17 April 2015 This paper examines the asymptotic dependence between the Chinese stock market and the world crude oil market based on the Extreme Value Theory (EVT) and finds a positive extremal dependence. We explain this positive dependence in terms of economic cycles due ...