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Article
Publication date: 30 November 2007

Jae Ha Lee and Deok Hee Hahn

This study explores the Granger causal relationship between return and volume in the KOSPI200 spot and option markets for the period from December 13. 2002 to December 9…

Abstract

This study explores the Granger causal relationship between return and volume in the KOSPI200 spot and option markets for the period from December 13. 2002 to December 9. 2004. using minute-by-minute data. Specifically, we examine the lead-lag relationship among OPtion volume, option return, cash volume, and cash return to determine whether option volume and return impact cash return.

Our results show that option volume has no direct impact on cash return as cash return unilaterally leads option volume‘ While option volume impacts cash volume. cash return unilaterally leads cash volume. implying no indirect impact of option volume on cash return.

However, there is evidence that option return impacts cash return directly, given a bilateral causality between option return and casll return. Option return also impacts cash volume, but again cash volume has no impact on cash return. meaning no indirect impact of option return on cash return. Our findings were generally robust across days of the week and different maturities. Finally, we analyzed lead-lag relationship within the option market. and found a bilateral causality between option volume and option return. This implies that option volume may impact cash return indirectly via option return.

Details

Journal of Derivatives and Quantitative Studies, vol. 15 no. 2
Type: Research Article
ISSN: 2713-6647

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Article
Publication date: 24 September 2021

Lu Yang

To capture the last hour momentum over the intraday session, the authors develop a trading strategy for the exchange-traded fund (ETF) that is effective because of the T+0…

Abstract

Purpose

To capture the last hour momentum over the intraday session, the authors develop a trading strategy for the exchange-traded fund (ETF) that is effective because of the T+0 trading rule. This strategy generates annualized excess return of 9.673%.

Design/methodology/approach

In this study, the authors identify a last hour momentum pattern in which the sixth (seventh) half-hour return predicts the next half-hour return by employing high frequency 2012–2017 data from the China Securities Index (CSI) 300 and its ETF.

Findings

Overall, both the predictability and the trading strategy are statistically and economically significant. In addition, the strategy performs more strongly on high volatility days, high trading volume days, high order-imbalance days and days without economic news releases than on other days.

Originality/value

Noise trading, late-information trading, infrequent rebalancing and disposition effects from retail investors may account for this phenomenon.

Details

China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

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Book part
Publication date: 9 February 2018

Derek Moore

Abstract

Details

Broken Pie Chart
Type: Book
ISBN: 978-1-78743-554-4

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Book part
Publication date: 24 March 2005

Charles W. Hodges, Haim Levy and James A. Yoder

We use stochastic dominance to test whether investors should prefer riskier securities as the investment horizon lengthens. Simulated return distributions for stocks…

Abstract

We use stochastic dominance to test whether investors should prefer riskier securities as the investment horizon lengthens. Simulated return distributions for stocks, bonds, and U.S. Treasury bills are generated for holding periods of one to 20 years and stochastic dominance tests are run to establish preferences among the alternative portfolios. With independent returns, we find no evidence that high-risk securities (stocks) dominate low-risk securities (bonds) as the investment horizon lengthens. Under the assumption that security returns are correlated across time, we find that common stocks dominate corporate bonds and U.S. Treasury bills for sufficiently long investment horizons.

Details

Research in Finance
Type: Book
ISBN: 978-0-76231-161-3

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Article
Publication date: 17 September 2021

Mincheol Woo and Meong Ae Kim

Informed traders may prefer the options market to the stock market for reasons including the leverage effect, transaction costs, restrictions on short sale. Many studies…

Abstract

Informed traders may prefer the options market to the stock market for reasons including the leverage effect, transaction costs, restrictions on short sale. Many studies try to predict future returns of stocks using informed traders' behavior in the options market. In this study, we examine whether the trading volume ratios of single stock options have the predictive power for future returns of the underlying stock. By analyzing the stock price responses to the “preliminary announcement of performance” of 36 underlying stocks on the Korea Exchange from November 2014 to March 2021 and the trading volume of options written on those stocks, we investigate the relation between the option ratios, which are the call option volume to put option volume ratio (C/P ratio) and the option volume to stock volume ratio (O/S ratio), and the future returns of the underlying stock. We also examine which ratio is better in predicting the future returns. The authors found that both option ratios showed the statistically significant predictability about future returns of the underlying stock and that the return predictability of the O/S ratio is more robust than that of the C/P ratio. This study shows that indicators generated in the options market can be used to predict future underlying stock returns. Further, the findings of this study contributed to a dearth of literature pertaining to single stock options. The results suggest that the single stock options market is efficient and influences the price discovery in the stock market.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1229-988X

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Article
Publication date: 13 September 2021

Doan Van Dinh

This study aims to investigate the relationship between risks and the expected return of financial investment because the relationship between them is negative; if the…

Abstract

Purpose

This study aims to investigate the relationship between risks and the expected return of financial investment because the relationship between them is negative; if the investors agree to the higher level of risk, they have the greater the expected return; therefore, investors always require a degree of proportionality between the risks and returns.

Design/methodology/approach

This study applied the standard deviation, variance, coefficient of variation methods and matrix function to measure risks. Besides, the dataset is a return on equity ROE, which is collected in three companies at time series from 2005 to 2020.

Findings

When the variance or the standard deviation is higher, the return on the securities is higher, but the securities are a higher risk and vice versa. The results showed risk levels of stocks that are 2.509%, 0.367%, 3.666% and the corresponding return mean of 38.68%, 23.99% and 14.02%.

Originality/value

The results support the portfolio management policy appropriately. This study identifies issues for managers, investors and readers to consider: have a comprehensive solution among microcosmic policies, finance policy, investment policy and other policies to control and balance the relationship between risks and returns; have appropriate policies to regulate funds to stimulate investment in the long term.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

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Book part
Publication date: 25 March 2010

Helen Xu

This study presents evidence of a statistically significant negative correlation between crude oil and equities over the past 20 years. Including proper proportions of…

Abstract

This study presents evidence of a statistically significant negative correlation between crude oil and equities over the past 20 years. Including proper proportions of negatively correlated assets in a diversified portfolio can improve the ratio of reward relative to risk, and therefore, adding crude oil with equities into a diversified portfolio can provide superior portfolio performance, compared with equities alone. Because crude oil prices held stable for nearly a century before the oil crisis of 1973, and oil derivatives did not begin trading actively on public markets until the 1980s, the diversification value of oil is a relatively new phenomenon. Also contributing to the phenomenon, the majority of oil reserves and the majority of crude oil production capacity worldwide are held by entities that are not traded in public equity markets, and therefore, the diversification benefits of oil cannot be fully realized by holding a portion of the global market portfolio of equities.

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-726-4

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Article
Publication date: 21 September 2021

Mahdi Ghaemi Asl, Muhammad Mahdi Rashidi and Seyed Ali Hosseini Ebrahim Abad

The purpose of this study is to investigate the correlation between the price return of leading cryptocurrencies, including Bitcoin, Ethereum, Ripple, Litecoin, Monero…

Abstract

Purpose

The purpose of this study is to investigate the correlation between the price return of leading cryptocurrencies, including Bitcoin, Ethereum, Ripple, Litecoin, Monero, Stellar, Peercoin and Dash, and stock return of technology companies' indices that mainly operate on the blockchain platform and provide financial services, including alternative finance, democratized banking, future payments and digital communities.

Design/methodology/approach

This study employs a Bayesian asymmetric dynamic conditional correlation multivariate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) (BADCC-MGARCH) model with skewness and heavy tails on daily sample ranging from August 11, 2015, to February 10, 2020, to investigate the dynamic correlation between price return of several cryptocurrencies and stock return of the technology companies' indices that mainly operate on the blockchain platform. Data are collected from multiple sources. For parameter estimation and model comparison, the Markov chain Monte Carlo (MCMC) algorithm is employed. Besides, based on the expected Akaike information criterion (EAIC), Bayesian information criterion (BIC), deviance information criterion (DIC) and weighted Deviance Information Criterion (wDIC), the skewed-multivariate Generalized Error Distribution (mvGED) is selected as an optimal distribution for errors. Finally, some other tests are carried out to check the robustness of the results.

Findings

The study results indicate that blockchain-based technology companies' indices' return and price return of cryptocurrencies are positively correlated for most of the sampling period. Besides, the return price of newly invented and more advanced cryptocurrencies with unique characteristics, including Monero, Ripple, Dash, Stellar and Peercoin, positively correlates with the return of stock indices of blockchain-based technology companies for more than 93% of sampling days. The results are also robust to various sensitivity analyses.

Research limitations/implications

The positive correlation between the price return of cryptocurrencies and the return of stock indices of blockchain-based technology companies can be due to the investors' sentiments toward blockchain technology as both cryptocurrencies and these companies are based on blockchain technology. It could also be due to the applicability of cryptocurrencies for these companies, as the price return of more advanced and capable cryptocurrencies with unique features has a positive correlation with the return of stock indices of blockchain-based technology companies for more days compared to the other cryptocurrencies, like Bitcoin, Litecoin and Ethereum, that may be regarded more as speculative assets.

Practical implications

The study results may show the positive role of cryptocurrencies in improving and developing technology companies that mainly operate on the blockchain platform and provide financial services and vice versa, suggesting that managers and regulators should pay more attention to the usefulness of cryptocurrencies and blockchains. This study also has important risk management and diversification implications for investors and companies investing in cryptocurrencies and these companies' stock. Besides, blockchain-based technology companies can add cryptocurrencies to their portfolio as hedgers or diversifiers based on their strategy.

Originality/value

This is the first study analyzing the connection between leading cryptocurrencies and technology companies that mainly operate on the blockchain platform and provide financial services by employing the Bayesian ssymmetric DCC-MGARCH model. The results also have important implications for investors, companies, regulators and researchers for future studies.

Details

Journal of Enterprise Information Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1741-0398

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Article
Publication date: 27 September 2021

Manogna RL and Aswini Kumar Mishra

The phenomenon known as financialization of commodities, arising from the speculation in commodity derivatives market, has raised serious concerns in the recent past. This…

Abstract

Purpose

The phenomenon known as financialization of commodities, arising from the speculation in commodity derivatives market, has raised serious concerns in the recent past. This has prompted distortion in agricultural commodity prices driving them away from rational levels of supply and demand shocks. In the backdrop of financialized commodities leading to increase in price of agricultural products and their interaction with equity markets, the authors examine the investment of institutional investors in impacting the agricultural returns. The paper aims to focus on the financial mechanism that drives extreme values and the mean of agricultural returns.

Design/methodology/approach

The authors employ the Threshold AutoRegressive Quantile (TQAR) methodology to find evidence of linkages between the Indian agricultural and equity markets from January 2010 to May 2020 consistent with the rise in inflows of institutional investors in agricultural markets.

Findings

The results reveal that the investors impact the agricultural commodity markets strongly when the composite commodity index value (COMDEX) is low. Additionally, in the lower extreme quantiles (0.25) of agricultural returns, the integration between the equity index and agricultural returns is found to be highly significant compared to insignificant values in the higher quantiles (0.75 and 0.95) in both the regimes. The results suggest that low values of agricultural commodities are more closely linked to equity indices when composite commodity index value is low. This implies that, at the lower quantiles of COMDEX return (bad day), the investors move to the stock market. In that way, the commodity index returns are seen to be as a strong channel for the financialization of Indian agricultural commodities and suggesting potential involvement of investors during those regime.

Research limitations/implications

Regulators need to anticipate the price fluctuations in spot and futures markets. Investors in commodity markets need to strengthen risk awareness to carry out portfolio strategies.

Practical implications

From policy perspective, it is of pivotal importance to enhance the understanding of the financialization of agricultural products. The findings provide reference measures to stabilize the commodity markets, alleviate price distortions and carry out further evidence of price discovery and risk management in Indian commodity markets.

Originality/value

To the best of the authors’ knowledge, this study is the first to highlight the potential influence of financial markets on the financialization of agricultural commodities in an emerging economy like India.

Details

International Journal of Social Economics, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0306-8293

Keywords

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Book part
Publication date: 16 February 2006

Uri Ben-Zion and Niklas Wagner

Overnight risk is of particular interest for many market participants including traders who provide liquidity to the market, but also to market participants with longer…

Abstract

Overnight risk is of particular interest for many market participants including traders who provide liquidity to the market, but also to market participants with longer investment horizons who want to determine whether a given risk–return tradeoff can justify possible intermediate portfolio hedging transactions. Overnight risk may in particular play a highly significant role in emerging markets, given that information is incorporated into prices at a slower rate and liquidity may hinder a quick unwinding of portfolio positions.

Details

Emerging European Financial Markets: Independence and Integration Post-Enlargement
Type: Book
ISBN: 978-0-76231-264-1

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