Mergers and Acquisitions and Market Volatility of Brazilian Banking Stocks: An Application of GARCH Models

The main objective of this research was to investigate the impacts caused by announcements of mergers and acquisitions (M&As) on the volatility of the returns of Brazilian bank stocks from 1994 to 2015. In order to achieve the proposed objective, this study applied Generalized Autoregressive Conditional Heteroscedastic (GARCH) class models to the series to model their volatility. Our results confirmed the impact of the announcement of M&As on volatility. They suggest that M&A announcements are expected to cause a negative reaction if related to an expansion or a deal involving a less-well known bank, and a positive reaction if it involves well-known bank with good reputation—a higher level of confidence and a lower level of information asymmetry for investors.     

Earnings announcement timing,uncertainty, and volatility risk premiums

We examine the relationship between firms’ quarterly earnings report timing and uncertainty before quarterly earnings announcements. Prior research provides conflicting predictions on how investor uncertainty and report timing are related. Using implied volatilities from equity options and the realized returns to straddle positions, we find evidence that uncertainty and volatility risk premiums are higher for firms that report later in the quarter. Further tests show that the increase in option premiums is unexplained by risk factors suggesting a mispricing by investors. These results are not associated with static firm-level factors and our findings are concentrated in high growth firms.     

What moves German Bund futures contracts on the Eurex?

The German 10‐year Bund futures contract traded on the Eurex futures and options exchange in Frankfurt became the world's most actively traded derivative product by the end of 1999. In this article, we provide a detailed exploration of the interday and intraday return volatility in the Bund futures contract using a sample of five‐min returns from 1997 to 1998. The evolution of interday volatility is described best by a MA(1)‐fractionally integrated process that allows for the long‐memory features. At the intraday level, we find that macroeconomic announcements from both Germany and the U.S. are an important source of volatility. Among the various German announcements, we identify the IFO industry survey of business climate, industrial production (preliminary), and Bundesbank policy meeting as being by far the most important. The three most significant U.S. announcements include the employment report, the National Association of Purchasing Managers (NAPM) survey, and employment costs. Overall, U.S. macroeconomic announcements have a far greater impact on the Bund futures market than their German counterparts. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:679–696, 2002     

我国股票市场收益、交易量、波动性动态关系的实证分析

本文对我国股票市场上证指数和深圳成指的收益、交易量、波动性之间的动态关系进行了实证研究,研究结果表明:收益和绝对收益与交易量之间均存在正相关关系;收益与交易量以及绝对收益与交易量之间存在双向Granger因果关系(线性或非线性);深圳成指收益的波动方差对收益具有正向作用,而上证指数收益的波动方差对收益没有直接的影响;上证指数和深圳成指的成交量对股指收益的波动方差不具有解释作用.     

Intraday Volatility in Interest‐Rate and Foreign‐Exchange Markets: ARCH,Announcement, and Seasonality Effects

We explore the determinants of intraday volatility in interest‐rate and foreign‐exchange markets, focusing on the importance and interaction of three types of information in predicting intraday volatility: (a) knowledge of recent past volatilities (i.e., ARCH or Autoregressive Conditional Heteroskedasticity effects); (b) prior knowledge of when major scheduled macroeconomic announcements, such as the employment report or Producer Price Index, will be released; and (c) knowledge of seasonality patterns. We find that all three information sets have significant incremental predictive power, but macroeconomic announcements are the most important determinants of periods of very high intraday volatility (particularly in the interest‐rate markets). We show that because the three information sets are not independent, it is necessary to simultaneously consider all three to accurately measure intraday volatility patterns. For instance, we find that most of the previously documented time‐of‐day and day‐of‐the‐week volatility patterns in these markets are due to the tendency for macroeconomic announcements to occur on particular days and at particular times. Indeed, the familiar U‐shape completely disappears in the foreign‐exchange market. We also find that estimates of ARCH effects are considerably altered when we account for announcement effects and return periodicity; specifically, estimates of volatility persistence are sharply reduced. Separately, our results show that high volatility persists longer after shocks due to unscheduled announcements than after equivalent shocks due to scheduled announcements, indicating that market participants digest information much more quickly if they are prepared to receive it. However, contrary to results from equity markets, we find no evidence of a meaningful difference in volatility persistence after positive or negative price shocks. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21: 517–552, 2001     

Fear Linkages Between the US and BRICS Stock Markets: A Frequency-Domain Causality

Abstract

We employ a spectral causality approach to uncover short-, medium-, and long-run causal relations between the US implied volatility index and the five individual implied volatility indexes of BRICS markets from 16^th March 2011 to 31^st January 2018. We show that the volatility causal relations differ between the short and long run in many cases. Although the results indicate the dominant role played by US uncertainty in shaping uncertainty in all BRICS markets, there is also evidence of a feedback effect from Brazil, Russia, and China to the US that differs across the spectrum. The implications for hedging and risk management practices are explored.     

The Breakdown of Idiosyncratic Volatility Into Expected and Unexpected Components and Its Effects on Stock Returns in Brazil

Based on studies of idiosyncratic volatility developed in the recent literature, this study analyzes its relation with expected returns through the breakdown of idiosyncratic volatility in the Brazilian stock market and presents evidence of the importance of expected idiosyncratic volatility for asset pricing. We study the impact of the expected and unexpected components of idiosyncratic volatility on the returns of shares listed on the BOVESPA between 2004 and 2011. The results show a strong positive and significant relation between expected idiosyncratic volatility and returns. This evidence is highlighted when we use unexpected idiosyncratic volatility to control for unexpected returns. Additional robustness tests, controlling for size and momentum effects, also have positive and significant coefficients, corroborating previous findings.     

What moves the gold market?

In this article, we provide a detailed characterization of the intraday return volatility in gold futures contracts traded on the COMEX division of the New York Mercantile Exchange. The approach allows the study of intraday patterns, interday ARCH effects, and announcement effects in a coherent framework. We show that the intraday patterns exert a profound impact on the dynamics of return volatility. Among the 23 U.S. macroeconomic announcements, we identify employment reports, gross domestic product, consumer price index, and personal income as having the greatest impact. Finally, by appropriately filtering out the intraday patterns, we find that the high‐frequency returns reveal long‐memory volatility dependencies in the gold market, which have important implications on the pricing of long‐term gold options and the determination of optimal hedge ratios. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:257–278, 2001     

Option volume and volatility response to scheduled economic news releases

In this article, we examine the impact of 21 different types of scheduled macroeconomic news announcements on S&P 100 stock‐index option volume and implied volatility. We find that there is a 2‐h delay after the announcement before volume increases. However, there is an immediate increase in volatility, which slowly dissipates over several hours. Further analysis shows that most of the high volume and volatility after announcements come from the announcements that are considered bad news. That is, bad news creates high volatility and high volume, whereas good news elicits lower volume and is not associated with higher volatility. These results are not consistent with the predictions of any one model. We also find that the announcements that cause the largest reaction in the equity option market are Consumer Credit, Consumer Spending, Factory Inventories, NAPM, and Non‐Farm Payrolls. Six other announcements elicit a mild response. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:315–345, 2003     

Financial connectedness of BRICS and global sovereign bond markets

The paper examines the financial connectedness via return and volatility spillovers between Brazil, Russia, India, China and South Africa (BRICS) and three global bond market indices represented by the United States of America (USA), European Monetary Union (EMU) and Japan for the period 01 January 1997 to 27 July 2016 (weekly data). We find that Russia followed by South Africa is the net transmitter of shocks within BRICS, implying that the risk arising from these markets may have an adverse impact on others in BRICS. However, China and India exhibit weak connectedness, suggesting that these markets may be useful for hedging and diversification opportunities in BRICS. The networks of pairwise spillover results further confirm this. Among global indices, China appears as highly interconnected with the USA. USA is the strongest transmitter of shocks to BRICS bond indices. The panel data results further confirm the significant determinants of net directional spillover. Thus, we can conclude that BRICS is a heterogeneous asset class even in the case of the bond market. India and China are the markets to look for better risk management strategies.     

The impacts of public news announcements on intraday implied volatility dynamics

We examine the responses of intraday option-implied volatilities to scheduled announcements of macroeconomic indicators. The increase in implied volatility around macroeconomic news announcements is more pronounced for puts than for calls and is stronger for announcements made during trading hours than for those made during nontrading hours. These effects are also more pronounced in the crisis and postcrisis periods than in the precrisis period. Monetary policy announcements have a more substantial impact on volatility than other announcements have, even after controlling for news surprise components. The impact appears to be greater for policy rate hikes than for policy rate cuts.     

Does global fear predict fear in BRICS stock markets? Evidence from a Bayesian Graphical Structural VAR model

We examine the predictive power of implied volatility in the commodity and major developed stock markets for the implied volatility in individual BRICS stock markets. We use daily data from March 2011 to October 2016 and employ the newly developed Bayesian Graphical Structural Vector Autoregressive (BGSVAR) model of Ahelegbey et al. (2016). Evidence suggests that the predictability of individual implied volatilities in BRICS is generally a function of both global and within the group stock market implied volatilities, and that the role of commodity market volatility is marginal, except for South Africa. Important implications for policy-makers and portfolio-managers are discussed.     

The fear of globalizing capital markets

It is generally accepted that free flow of goods benefits both economies without serious risks. The situation with the free flow of capital is different. Many policy makers and economists are skeptical not only about the benefits of free flow of capital, but also see uncontrolled capital flows as risky and destabilizing. Other economists, however, firmly believe that free capital flows will lead to a more efficient allocation of resources and greater economic growth. Nevertheless, the debate has little empirical evidence to rely on. We hope to fill that gap in this paper. We study the benefits and risks associated with capital flows by examining the experience of emerging economies around the time that foreign investment in stock markets was allowed. We investigate the impact of capital flows on stock returns, stock market efficiency, inflation, and exchange rates. We also examine the effect on different kinds of volatility that might arise as a consequence of capital flows: volatility of stock returns, volatility of inflation rates, and volatility of exchange rates. We find no evidence of an increase in inflation or an appreciation of exchange rates. Stock returns reflect a lower cost of capital after liberalization. There is no increase in stock market volatility and the volatility of inflation and exchange rates actually decreases. Stock markets become more efficient as determined by testing the random walk hypothesis.     

The information content in implied idiosyncratic volatility and the cross‐section of stock returns: Evidence from the option markets

Current literature is inconclusive as to whether idiosyncratic risk influences future stock returns and the direction of the impact. Earlier studies are based on historical realized volatility. Implied volatilities from option prices represent the market's assessment of future risk and are likely a superior measure to historical realized volatility. Implied idiosyncratic volatilities on firms with traded options are used to examine the relationship between idiosyncratic volatility and future returns. A strong positive link was found between implied idiosyncratic risk and future returns. After considering the impact of implied idiosyncratic volatility, historical realized idiosyncratic volatility is unimportant. This performance is strongly tied to small size and high book‐to‐market equity firms. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28: 1013–1039, 2008     

Military regimes and stock market performance

We examine whether military regimes harm stock market performance by investigating stock returns in ten emerging markets under military and civilian rule. We find no evidence of military regimes having a significantly negative impact on stock returns. In the case of Thailand and Pakistan, we find a significant positive military return premium. These returns cannot be explained by economic cycles, stock market cycles, or returns volatility. Our findings are robust to worldwide stock market movements, tests for spurious regression bias and randomization-bootstrap tests. Our results contradict the common view that military rule has a negative impact on stock market performance.     

What moves option‐implied bond market expectations?

This article examines the impact of macroeconomic news announcements on bond market expectations, as measured by option‐implied probability distributions of future bond returns. The results indicate that expected bond market volatilities increase in response to higher‐than‐expected inflation and unemployment announcements. Furthermore, the asymmetries in bond market expectations are found to be affected mostly by surprises in inflation and economic production figures. In particular, it is found that higher‐than‐expected inflation announcements cause optionimplied bond return distributions to become more negatively skewed or less positively skewed, implying a shift in market participants' perceptions toward future increases in interest rates. Finally, the results indicate that market expectations of future extreme movements in bond prices are virtually unaffected by macroeconomic news releases. Some evidence is found, however, that suggests that after extreme surprises in inflation announcements market participants attach higher probabilities for extreme movements in bond prices. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:817–843, 2005     

Do emerging markets become more efficient as they develop? Long memory persistence in equity indices

It seems reasonable to expect financial market efficiency to be related to the economic development level. We study a 16 year sample, covering 22 countries. The Hurst–Mandelbrot–Wallis rescaled range is our efficiency measure, which we apply to returns and volatility. We find strong evidence of long memory persistence in volatility over time, which is unsurprising. However, unlike previous researchers, we could not find evidence of rescaled ranges trending down over time. However, we introduce an alternative measure of economic development, namely, whether FTSE (2011) classify an emerging market as ‘advanced’ or ‘secondary’. This measure shows greater efficiency in returns and volatility for ‘advanced’ emerging markets.     

The Effect of Timeliness and Credit Ratings on the Information Content of Earnings Announcements

This paper investigates the impact of timeliness and credit ratings on the information content of the earnings announcements of Greek listed firms from 2001 to 2008. Using the classical event study methodology and regression analysis, we find that firms tend to release good news on time and are inclined to delay the release of bad news. We also provide evidence that the level of corporate risk differentiates the information content of earnings according to the credit rating category. Specifically, firms displaying high creditworthiness enjoy positive excess returns on earnings announcement dates. In contrast, firms with low creditworthiness undergo significant share price erosions on earnings announcement days. We also observe a substitution effect between timeliness and credit ratings in relation to the information content of earnings announcements. Specifically, we find that as the credit category of earnings-announcing firms improves, the informational role of timeliness is mitigated.     

Forecasting bitcoin volatility: Evidence from the options market

This paper studies a large number of bitcoin (BTC) options traded on the options exchange Deribit. We use the trades to calculate implied volatility (IV) and analyze if volatility forecasts can be improved using such information. IV is less accurate than AutoRegressive–Moving-Average or Heterogeneous Auto-Regressive model forecasts in predicting short-term BTC volatility (1 day ahead), but superior in predicting long-term volatility (7, 10, 15 days ahead). Furthermore, a combination of IV and model-based forecasts provides the highest accuracy for all forecasting horizons revealing that the BTC options market contains unique information.     

BRICS: How important is the exchange rate pass-through?

This paper analyses the exchange rate pass-through (ERPT) into domestic consumer prices in BRICS (Brazil, Russia, India, China and South Africa) countries from mid-1990s onwards by using three different econometric approaches (i.e., the single equation approach, the VAR approach and the time-varying parameter approach). It is also studied the role of macroeconomic determinants in ERPT. Our results suggest that (a) ERPT is higher for the emerging markets with mostly floating exchange rates (Brazil, Russia and South Africa) than for the other BRICS countries; (b) exchange rate explains, on average, around the 40% of the price variance for Brazil, Russia and South Africa; and (c) inflation volatility, exchange rate volatility and openness seem to be the key macroeconomic determinants in BRICS countries.