Heteroskedasticity in returns may be explainable by trading volume. We use different volume variables, including surprise volume - i.e. unexpected above-average trading activity - which is derived from uncorrelated volume innovations. Assuming weakly exogenous volume, we extend the Lamoureux and...

Previous evidence in empirical finance indicates the potential usefulness of modeling time-variation particularly in the tails of speculative return distributions. Based on results from extreme value theory, the present paper proposes a fixed changepoint Pareto-type autoregressive conditional...

This paper proposes time-varying idiosyncratic risk as a component driving conditional abnormal returns and outlines a corresponding Engle et al. (1987) ARCH-M market model. An application is given to initial public offering (IPO) aftermarket stock returns, where a positive relation between...

The occurrence and the transmission of large shocks in international equity markets is of essential interest to the study of market integration and financial crises. To this aim, implied market volatility allows to monitor ex-ante risk expectations in different markets. We investigate the...

We propose and test novel multifactor models of daily mutual fund performance. To this aim, we set up equity style indices and derive risk factors, which nest the established Fama and French (1992) and Carhart (1997) factors. We add two additional risk factors, namely idiosyncratic risk and...

The recent global financial crisis represents a major economic challenge. In order to prevent such market failure, it is vital to understand what caused the crisis and what are the lessons to be learned. Given the tremendous bailout packages worldwide, we discuss the role of governments as...

Asymmetric volatility in equity markets has been widely documented in finance (Bekaert and Wu (2000)). We study asymmetric volatility for daily Samp;P 500 index returns and VIX index changes, thereby examining the relation between extreme changes in risk-neutral volatility expectations, i.e....

Several authors, including Andersen and Bollerslev (1998), stress the importance of long-term volatility dependence for value-at-risk (VaR) prediction. The present paper addresses multiple-period market risk forecasts under long memory persistence in market volatility. To this aim, we propose...

Accurate modeling of extreme price changes is vital to financial risk management. We examine the small sample properties of adaptive tail index estimators under the class of student-t marginal distribution functions including GARCH and propose a model-based bias-corrected estimation approach....

This paper documents nonlinear cross-sectional dependence in the term structure of U.S. Treasury yields and points out risk management implications. The analysis is based on a Kalman filter estimation of a two-factor affine model which specifies the yield curve dynamics. We then apply a broad...