Cross-sectional Dependence in Idiosyncratic Volatility

Starting in the 1990s, US bank assets grew more concentrated among a few large institutions. We explore the changing role of idiosyncratic volatility as a shaping force of the bank asset power law distribution. Our results reveal that idiosyncratic asset volatilities for bank-holding companies declined since the 1990s. To the extent that firm-specific shocks can have significant macroeconomic consequences, this result implies that even as one obvious source of aggregate risk and contagion--bank asset concentration--has increased, another important source--idiosyncratic volatility--has diminished.

This thesis examines predictability and seasonality in the cross-section of stock returns. The first chapter, titled ``Infrequent Rebalancing, Return Autocorrelation, and Seasonality,'' shows that a model of infrequent rebalancing can explain specific predictability patterns in the time series and cross-section of stock returns. First, infrequent rebalancing produces return autocorrelations that are consistent with empirical evidence from intraday returns and new evidence from daily returns. Autocorrelations can switch sign and become positive at the rebalancing horizon. Second, the cross-sectional variance in expected returns is larger when more traders rebalance. This effect generates seasonality in the cross-section of stock returns, which can help explain available empirical evidence. The second chapter, titled ``Seasonalities in Anomalies,'' investigates return seasonalities in a set of well-known anomalies in the cross-section of U.S. stocks returns. A January seasonality goes beyond a size effect and strongly affects most anomalies, which can even switch sign in January. Both tax-loss selling and firm size are important in explaining the turn-of-the-year pattern. Return seasonality exists outside of January, with respect to the month of the quarter. Small stocks earn abnormally high average returns on the last day of each quarter, which significantly affects size, idiosyncratic volatility, and illiquidity portfolios. The results have implications for the interpretation and analysis of many anomalies, such as asset growth and momentum. The third chapter, titled ``The Cross-Section of Intraday and Overnight Returns,'' uses a thirty-year sample of U.S. stock returns to document substantial cross-sectional variation in returns over the trading day and overnight. Market closures have a large impact on returns. Small and illiquid stocks earn high average returns in the last thirty minutes of trading. In contrast, large and liquid stocks perform poorly at this time. I find support for institutional and information asymmetry theories. But these theories do not fully explain the cross-sectional evidence. Portfolios based on other characteristics, such as beta and idiosyncratic volatility, earn their return gradually throughout the trading day–contrary to the market and a benchmark based on random portfolios. These portfolios also tend to incur large negative returns overnight, consistent with mispricing at the open.

This paper examines the idiosyncratic volatility puzzle and whether investor sentiment influences the relation between idiosyncratic volatility and stock returns in the Chinese stock market. The findings indicate the existence of a negative idiosyncratic volatility effect. In addition, the results show that the relation between idiosyncratic volatility and returns significantly depends on investor sentiment. Thus, investor sentiment plays a very important role in reconciling the relation between idiosyncratic volatility and stock returns in the Chinese stock market. This implies that investor sentiment may be one of the major risk factors that should be considered in the Chinese stock market. In terms of predictive ability of investor sentiment, idiosyncratic volatility and market volatility, the findings indicate that idiosyncratic volatility positively predicts future excess market returns in the Chinese stock market.

Index of stocks listed on the Indonesia Stock Exchange (IDX) there are conventional that one of them is the Composite Stock Price Index (CSPI) and the index of stocks that are sharia is the Jakarta Islamic Index (JII). In its movement, the value of CSPI and JII often increases and decreases that are influenced by several factors, one of which is the world oil price of Brent Crude Oil . To see the value of CSPI and JII conditions during the period of the next few months it takes the model equations. Because the third such data included in the time series data, we used time series analysis with the appropriate method is the Vector Autoregressive Exogenous (VARX). VARX( p , q ) is a model of multivariate time series that consists of several endogenous variable of the time series order p with q adding exogenous variables. The purpose of this study is to obtain an appropriate VARX models and forecasting for data CSPI and JII. The model to predict CSPI and JII with exogenous variables that influence the world oil prices of Brent Crude Oil is VARX(1,1). Test parameters for exogenous variables in the model VARX(1,1) not significant at significance level α = 5%, but this result could be ignored and continues to testing residual assumptions. Residual model VARX(1,1) satisfies the assumption of white noise and multivariate normal distribution, in order to obtain results as very good forecast that with each MAPE value for CSPI and JII forecast of 2,71% and 3,63%. Keywords : CPSI, JII, Brent Crude Oil , VARX, MAPE.

Idiosyncratic volatility: An indicator of noise trading?

Aggregate Idiosyncratic Volatility

The research concerning the residual stress typically found on thin films deposited by magnetron sputtering technique could be affected by several factors, but mainly the work pressure and the applied potential difference during the deposition process. These factors are highlighted because they can directly influence the ion energy and the ejected atoms. The objective of this work is to evaluate residual stress on Cr and Hf thin films produced by magnetron sputtering technique related to the influence of the energy variation of deposited atoms. The work pressure was varied during the deposition process in order to obtain specific ions energy values: 350 V, 400 V, 450 V, 500 V e 550 V, keeping constant 100 W of potence. Stoney law was used to calculate the residual stress, measuring the substrates curvature radii. Samples mechanical properties were characterized by instrumented hardness tests (IHT) using a Fischerscope HV100 equipped with a Berkovich penetrator. Results indicate the existence of a strong dependence between the work pressure and the residual stress of the coatings.

Tests of Idiosyncratic Risk: Informed Trading Versus Noise and Arbitrage Risk

This study employs the daily data of the Stock Exchange of Thailand to test for the leverage and volatility feedback effects. The period of investigation is during January 4, 2005 to December 27, 2013, which includes the Subprime crisis period in the US that might affect the volatility of stock market return in emerging stock markets. The results from this study show that the US subprime crisis imposes a minimal positive impact on volatility. In addition, the estimations of the three parametric asymmetric volatility models give the results showing some evidence of the volatility feedback and leverage effects. The findings give implications for portfolio diversification and risk management.

Quality of work has been found to significantly affect health outcomes. In this paper we analyse the extent to which the quality of the work done in the past affects the health of the elderly in Italy. For this purpose, we use data drawn from the Italian sample of the Survey of Health, Ageing and Retirement in Europe (SHARE) and focus on individuals aged over 60. Using different types of factor analysis, we identify three dimensions of quality of work and five factors of health status. In particular, as regards the former, we distinguish among the physical dimension, the control dimension and the socioeconomic dimension of work quality. As regards health, using a nested factor model we obtain a factor of global health problems and four residual factors of cognitive problems, mobility problems, affective problems and motivational problems. These factors are then analysed by gender using a multivariate analysis. Our findings suggest that good quality of work in terms of the socioeconomic and control dimensions significantly decreases the probability of being globally unhealthy during the elder phase of one’s life cycle as well as of displaying motivational problems, the effect being similar in both genders. We also find that a higher level of control in men’s work increases their affective problems when they are older and have left the labour force, suggesting a loss in men’s social sphere after retirement from a rewarding job and a likely underdevelopment of their relational dimension outside their work activity.

Ambiguity, Macro Factors, and Stock Return Volatility

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.

The scale of global exchange-traded funds (ETFs) has shown an explosive growth trend; however, research on the impact of ETF activity on the stock market is still in its infancy. While ETFs increase the volatility of the U.S. stock market, there is scant literature on the impact of ETF activity on the volatility of the emerging A-share market. Owing to the large differences in the institutional and investor structure of the A-share market, will there be significant differences in the impact of ETFs on the volatility of the A-share market? This study found that ETF activity significantly reduced idiosyncratic volatility but increased systemic volatility. Since the decrease in idiosyncratic volatility was greater than the increase in systemic volatility, the overall volatility showed a downward trend. Further research on the impact mechanism showed that the idiosyncratic volatility of the A-share market was positively correlated with noise information. ETF activity reduced idiosyncratic volatility by reducing the noise information. Systematic volatility was positively correlated with faster information integration speed. ETF activity improved systematic volatility by improving information integration speed. This study elucidated the impact of ETF activity on stock price volatility under different market backgrounds.

Rent-seeking is a non-productive activity and is formed mostly following government intervention in the economy. In rent-seeking activities, resources and efforts are spent on achieving a monopoly position, and instead of being provided with productive activities, it is spent on distributive struggles that in the long run change the structure of economic and social incentives and lead to heavy welfare losses and heavy social costs. Therefore, identifying the factors affecting Rent-seeking helps us to reduce it and achieve economic growth. Property rights is one of the influential institutional variable that effect on rent-seeking. Property rights affect the motivation of individuals and the use of resources and can encourage productive activities such as the accumulation of skills, the development of new products and the creation of production technology, or can lead people to addictive, corrupt and crime behaviors. In countries where private property rights are well defined and enforced, the legal rights of investors are protected and investors are more willing to invest in financial institutions and the financial market flourishes. But if property rights are not well defined and enforced, people's motivation is distorted, people turn to rent-seeking, and their motivation to participate in productive work is greatly reduced.Due to the importance of property rights in the formation of rent-seeking, in this study, this issue is examined in addition to the impact of other variables such as education , democracy, economic growth, militarization, inflation and oil rent on rent-seeking. For this purpose, two groups selected member countries of the Organization of the Petroleum Exporting Countries (OPEC) and the Organization for Economic Cooperation and Development (OECD) have been studied from 1996 to 2017. To achieve this goal, a panel data model has been used. First, with the Hadri-Rao test, which considers structural breaks, the stationarity of the data was investigated, pre-estimation tests were performed, and then due to cross-sectional dependency, variance heterogeneity and autocorrelation between the residual errors in each selected Organization of the Petroleum Exporting Countries (OPEC) countries and selected member countries of the Organization for Economic Co-operation and Development (OECD) are estimated by the Driscoll-Cray method. The results show that in both groups, democracy and property rights and economic growth have a significant negative impact, both inflation and militarization has a positive and significant effect on rent-seeking. Also in the selected member countries of the Organization for Economic Co-operation and Development, the rent-seeking decreases as the state of education improves. However, this variable has a significant and positive effect on the rent-seeking in oil-exporting countries. On the other hand, in oil-exporting countries, oil rent have a positive and significant effect on rent-seeking, when oil rent increase, people have less motivation to do productive work and they do more distributive activities.

Understanding Cross-Sectional Dependence in Panel Data