This study extends Bakshi and Kapadia's (2003b) framework to a multi-factor model to verify the common macro-factors attributed to the price of volatility risk in U.K. equity options. The results point out the presence of a negative risk premium and indicate that both idiosyncratic volatility...

This paper relates to internet, noise trading and commodity futures prices. The theoretical framework is the Mixture Distribution Hypothesis (MDH) that posits a joint dependence of return volatility and information. We use two different proxies for the observed component of information flows,...

The aim of the research is to determine how the lifting of price restrictions on short sales and security-lending sales affects market efficiency, liquidity and arbitrage opportunities. The study examines trading behaviors of large and small traders separated by their transaction costs and shows...

Cash-futures basis, a proxy for arbitrage opportunities, is examined, and the impact of informed trading and the changing roles of speculators and arbitrageurs are analyzed in both the non-expiration and near-expiration periods. While we observe that market frictions account to some extent for...

This paper analyses the role of investor sentiment in the contemporaneous dynamics of spot and futures markets and in volatility spillovers between them. To explore this issue, we analyse spot and futures markets on stock market indexes in different countries: the S&P500 for the US, and a...

This paper examines the production and futures hedging decisions of the competitive firm under output price uncertainty and with state-dependent background risk. We show that the firm's optimal production decision is independent of the underlying uncertainty and of the firm's risk attitude. We...

Motivated by the empirical findings that asset returns or volatilities are predictable, this paper studies the pricing of European options on stock or volatility, the instantaneous changes of which depend upon an autoregressive moving average (ARMA) process. The pricing formula of an ARMA-type...

Arbitrage is non-parametrically examined and empirically analyzed in US equity markets. Firstly, analyzed are the properties of arbitrage; and secondly, the factors explaining arbitrage are tested. Empirical analysis concerns a decade of intraday data of five US equity indices and is also...

This paper investigates the herding tendency of foreign and domestic institutional investors and margin traders from different herding perspectives by using daily buy and sell data in Taiwan's stock market. Strong evidence indicates that herding phenomenon is closely associated with market...

We analyze the implication of a bailout package including a loan guarantee and a direct equity capital injection on the equity risk of a distressed bank at the taxpayer costs. The lending function with a loan guarantee of the bank creates the need to model equity as a down-and-out call (DOC)...