It is sometimes argued that an increase in stock market volatility raises required stock returns, and thus lowers stock prices. This paper modifies the generalized autoregressive conditionally heteroskedastic (GARCH) model of returns to allow for this volatility feedback effect. The resulting...

We measure the size and sources of gains from international diversification using metrics that are independent of currency choices. When we apply these measures to industry sector portfolios for six large equity markets, we find that, offered costless access to a foreign market, investors would...

It seems plausible that an increase in stock market volatility raises required stock returns, and thus lowers stock prices. We develop a formal model of this volatility feedback effect using a simple model of changing variance (a quadratic generalized autoregressive conditionally...

Estimating implied volatility by inverting the Black-Scholes formula is subject to considerable error when option characteristics are observed with plausible errors. Especially for options away from the money, large changes in volatility produce small changes in option prices. Conversely, small...

It is sometimes argued that an increase in stock market volatility raises required stock returns, and thus lowers stock prices. This paper modifies the generalized autoregressive conditionally heteroskedastic (GARCH) model of returns to allow for this volatility feedback effect. The resulting...

Public discussion about corporate use of derivatives focuses on whether firms use derivatives to reduce or increase firm risk. In contrast, empirical, academic studies of corporate derivatives-use take it for granted that firms hedge with derivatives. Using data from financial statements of 425...