The use of a conditionally unbiased, but imperfect, volatility proxy can lead to undesirable outcomes in standard methods for comparing conditional variance forecasts. We derive necessary and sufficient conditions on functional form of the loss function for the ranking of competing volatility...

In this paper we analyze and interpret the quote price dynamics of 100 NYSE stocks stratified by trade frequency. We specify an error-correction model for the log difference of the bid and the ask price with the spread acting as the error-correction term, and include as regressors the...

In this paper we analyze and interpret the quote price dynamics of 100 NYSE stockswith varying average trade frequencies. We specify an error-correction model for the logdifference of the bid and the ask price, with the spread acting as the error-correctionterm, and include as regressors the...

Evidence that asset returns are more highly correlated during volatile markets and during market downturns (see Longin and Solnik, 2001, and Ang and Chen, 2002) has lead some researchers to propose alternative models of dependence. In this paper we develop two simple goodness-of-fit tests for...

Recent studies in the empirical finance literature have reported evidence of two types of asymmetries in the joint distribution of stock returns. The first is skewness in the distribution of individual stock returns. The second is an asymmetry in the dependence between stocks: stock returns...

Recent studies in the empirical finance literature have reported evidence of two types of asymmetries in the joint distribution of stock returns. The first is skewness in the distribution of individual stock returns. The second is an asymmetry in the dependence between stocks: stock returns...

We investigate whether the betas of individual stocks vary with the release of firm-specific news. Using daily firm-level betas estimated from intra-day prices for all constituents of the Samp;P 500 index, we find that the betas of individual stocks increase by an economically and statistically...

A volatility model must be able to forecast volatility; this is the central requirement in almost all financial applications. In this paper we outline some stylized facts about volatility that should be incorporated in a model: pronounced persistence and mean-reversion, asymmetry such that the...

One can consider the concept of market neutrality for hedge funds as having breadth and depth: breadth reflects the number of market risks to which a fund is neutral, while depth reflects the completeness of the neutrality of the fund to market risks. We focus on market neutrality depth, and...

Recent studies in the empirical finance literature have reported evidence of two types of asymmetries in the joint distribution of stock returns. The Þrst is skewness in the distribution of individual stock returns, while the second is an asymmetry in the dependence between stocks: stock...