This paper presents a quantum harmonic oscillator model of price fluctuations in a stock market. The model builds on a previously-published quantum model of supply and demand, and is compared with other existing quantum models of stock markets, including quantum harmonic oscillator, square-well,...

A large literature suggests that the expected equity risk premium is countercyclical. Using a variety of different measures for this risk premium, we document that it also exhibits growth asymmetry, i.e. the risk premium rises sharply in recessions and declines much more gradually during the...

The assessment of portfolio risk is often explicitly (e.g., the square root formula under Basel III) or implicitly (e.g., credit risk portfolio models) driven by the marginal distributions of the risky components and the correlations amongst them. We assess the extent by which such practice is...

This paper introduces a novel Ito diffusion process to model high-frequency financial data, which can accommodate low-frequency volatility dynamics by embedding the discrete-time non-linear exponential GARCH structure with log-integrated volatility in a continuous instantaneous volatility...

We investigate the stock return volatility predictability using firm’s fundamental risk with machine learning approaches in China’s stock market. We find the machine learning models substantially improve the out-of-sample performance of fundamental risk in forecasting future volatility. The...

[enter AbstraInvestors may want to increase rate of return or decrease volatility through futures or moving-average timing technique. So, if they cannot know the density of rate of returns of an asset, they estimate the posterior density of a few parameters in economic model describing the...

This paper introduces a class of multivariate GARCH models with sufficient flexibility to allow for pricing kernels dependent on variances and correlation. This extends the existing literature by explicitly modeling correlation dependent pricing kernels. A large subclass admits closed-form...

In order to improve the dynamic assessment of financial market interdependencies, we develop a new Markov switching approach to multivariate volatility modelling. More specific, we take advantage of the flexible copula multivariate GARCH model of Lee and Long (2009), and allow state dependence...