We investigate the price dynamics of large market-capitalization U.S. equity exchange-traded funds (ETFs) in order to uncover trader motivations and strategy. We show that prices of highly liquid ETFs can deviate significantly from their daily net asset values. By adjusting for changes in...

Long memory in variance or volatility refers to a slow hyperbolic decay in auto-correlation functions of the squared or log-squared returns. GARCH models extensively used in empirical analysis do not account for long memory in volatility. The present paper examines the issue of long memory in...

Because implied volatility is essential for pricing options, analyzing derivative strategies and measuring risk in investment portfolios containing derivatives, understanding variations in implied volatility also becomes vital. Aside from a secular trend, volatility clustering and calendar...

The objective of this study was to analyze and model periodic behavior observed in India's Nifty VIX Index and to seek the origins of these previously unreported calendar variations. Implied volatility and its variations are important to understand as the pricing of many financial assets and...

This paper develops a closed-form model for options on commodities under the assumptions of mean-reversion in the commodity prices and regime-switching in the commodity returns volatility. After a closed-form solution for the option value in constant regimes has been developed, the model is...

Momentum is one of the largest and most pervasive market anomalies. However, despite a high mean and Sharpe ratio, momentum suffers from large negative skewness that comes from momentum crash periods. These crashes occur in times of both market stress and market rebound and thus variables that...

Low probability events are overweighted in the pricing of out-of-the-money index puts and single stock calls. We show that such a behavioral bias is strongly time-varying and is linked to equity market sentiment and higher moments of the risk-neutral density. We find that our implied volatility...

In this paper we document that at the aggregate stock market level the unexpected volatility is negatively related to expected future returns and positively related to future volatility. We demonstrate how the predictive ability of unexpected volatility can be utilized in dynamic asset...

This study investigates the impact of uncertainty on the mean-variance relationship. We find that the stock market’s expected excess return is positively related to the market’s conditional variances and implied variance during low uncertainty periods but unrelated or negatively related to...

This paper provides an empirical study on the predictability of implied volatility using dataset collected from the London over-the-counter currency option market. The present work is motivated by the lack of empirical studies that address implied volatility characteristics across various...