Volatility forecasts, trading volume, and the ARCH versus option-implied volatility trade-off

Market expectations of future return volatility play a crucial role in finance; so too does our understanding of the process by which information is incorporated in security prices through the trading process. The authors seek to learn something about both of these issues by investigating empirically the role of trading volume in predicting the relative informativeness of volatility forecasts produced by ARCH models versus the volatility forecasts derived from option prices and in improving volatility forecasts produced by ARCH and option models and combinations of models. Daily and monthly data are explored. The authors find that if trading volume was low during period $t – 1$ relative to the recent past, then ARCH is at least as important as options for forecasting future stock market volatility. Conversely, if volume was high during period $t – 1$ relative to the recent past, then option-implied volatility is much more important than ARCH for forecasting future volatility. Considering relative trading volume as a proxy for changes in the set of information available to investors, their findings reveal an important switching role for trading volume between a volatility forecast that reflects relatively stale information (the historical ARCH estimate) and the option-implied forward-looking estimate.

Stare down the barrel and center the crosshairs: Targeting the ex ante equity premium

The equity premium of interest in theoretical models is the extra return investors anticipate when purchasing risky stock instead of risk-free debt. Unfortunately, we do not observe this ex ante premium in the data; we only observe the returns that investors actually receive ex post, after they purchase the stock and hold it over some period of time during which random economic shocks affect prices. Over the past century U.S. stocks have returned roughly 6 percent more than risk-free debt, which is higher than warranted by standard economic theory; hence the "equity premium puzzle." In this paper we devise a method to simulate the distribution from which ex post equity premia are drawn, conditional on various assumptions about investors' ex ante equity premium. Comparing statistics that arise from our simulations with key financial characteristics of the U.S. economy, including dividend yields, Sharpe ratios, and interest rates, suggests a much narrower range of plausible equity premia than has been supported to date. Our results imply that the true ex ante equity premium likely lies very close to 4 percent.Bonds ; Investments ; Stock market ; Rate of return

Handling protest responses in contingent valuation surveys

OBJECTIVES: Protest responses, whereby respondents refuse to state the value they place on the health gain, are commonly encountered in contingent valuation (CV) studies, and they tend to be excluded from analyses. Such an approach will be biased if protesters differ from non-protesters on characteristics that predict their responses. The Heckman selection model has been commonly used to adjust for protesters, but its underlying assumptions may be implausible in this context. We present a multiple imputation (MI) approach to appropriately address protest responses in CV studies, and compare it with the Heckman selection model. METHODS: This study exploits data from the multinational EuroVaQ study, which surveyed respondents' willingness-to-pay (WTP) for a Quality Adjusted Life Year (QALY). Here, our simulation study assesses the relative performance of MI and Heckman selection models across different realistic settings grounded in the EuroVaQ study, including scenarios with different proportions of missing data and non-response mechanisms. We then illustrate the methods in the EuroVaQ study for estimating mean WTP for a QALY gain. RESULTS: We find that MI provides lower bias and mean squared error compared with the Heckman approach across all considered scenarios. The simulations suggest that the Heckman approach can lead to considerable underestimation or overestimation of mean WTP due to violations in the normality assumption, even after log-transforming the WTP responses. The case study illustrates that protesters are associated with a lower mean WTP for a QALY gain compared with non-protesters, but that the results differ according to method for handling protesters. CONCLUSIONS: MI is an appropriate method for addressing protest responses in CV studies

FEDERAL RESERVE BANK of ATLANTA Volatility Forecasts, Trading Volume, and the ARCH versus Option-Implied Volatility Trade-off

Abstract: Market expectations of future return volatility play a crucial role in finance; so too does our understanding of the process by which information is incorporated in security prices through the trading process. The authors seek to learn something about both of these issues by investigating empirically the role of trading volume in predicting the relative informativeness of volatility forecasts produced by ARCH models versus the volatility forecasts derived from option prices and in improving volatility forecasts produced by ARCH and option models and combinations of models. Daily and monthly data are explored. The authors find that if trading volume was low during period $t -1$ relative to the recent past, then ARCH is at least as important as options for forecasting future stock market volatility. Conversely, if volume was high during period $t -1$ relative to the recent past, then option-implied volatility is much more important than ARCH for forecasting future volatility. Considering relative trading volume as a proxy for changes in the set of information available to investors, their findings reveal an important switching role for trading volume between a volatility forecast that reflects relatively stale information (the historical ARCH estimate) and the option-implied forward-looking estimate. JEL classification: G

Remember the source: Dissociating frontal and parietal contributions to episodic memory

Event-related fMRI studies reveal that episodic memory retrieval modulates lateral and medial parietal cortices, dorsal middle frontal gyrus (MFG), and anterior pFC. These regions respond more for recognized old than correctly rejected new words, suggesting a neural correlate of retrieval success. Despite significant efforts examining retrieval success regions, their role in retrieval remains largely unknown. Here we asked the question, to what degree are the regions performing memory-specific operations? And if so, are they all equally sensitive to successful retrieval, or are other factors such as error detection also implicated? We investigated this question by testing whether activity in retrieval success regions was associated with task-specific contingencies (i.e., perceived targetness) or mnemonic relevance (e.g., retrieval of source context). To do this, we used a source memory task that required discrimination between remembered targets and remembered nontargets. For a given region, the modulation of neural activity by a situational factor such as target status would suggest a more domain-general role; similarly, modulations of activity linked to error detection would suggest a role inmonitoring and control rather than the accumulation of evidence from memory per se. We found that parietal retrieval success regions exhibited greater activity for items receiving correct than incorrect source responses, whereas frontal retrieval success regions were most active on error trials, suggesting that posterior regions signal successful retrieval whereas frontal regions monitor retrieval outcome. In addition, perceived targetness failed to modulate fMRI activity in any retrieval success region, suggesting that these regions are retrieval specific. We discuss the different functions that these regions may support and propose an accumulator model that captures the different pattern of responses seen in frontal and parietal retrieval success regions

Overhauling SC atomics in C11 and OpenCL

Despite the conceptual simplicity of sequential consistency (SC), the semantics of SC atomic operations and fences in the C11 and OpenCL memory models is subtle, leading to convoluted prose descriptions that translate to complex axiomatic formalisations. We conduct an overhaul of SC atomics in C11, reducing the associated axioms in both number and complexity. A consequence of our simplification is that the SC operations in an execution no longer need to be totally ordered. This relaxation enables, for the first time, efficient and exhaustive simulation of litmus tests that use SC atomics. We extend our improved C11 model to obtain the first rigorous memory model formalisation for OpenCL (which extends C11 with support for heterogeneous many-core programming). In the OpenCL setting, we refine the SC axioms still further to give a sensible semantics to SC operations that employ a ‘memory scope’ to restrict their visibility to specific threads. Our overhaul requires slight strengthenings of both the C11 and the OpenCL memory models, causing some behaviours to become disallowed. We argue that these strengthenings are natural, and that all of the formalised C11 and OpenCL compilation schemes of which we are aware (Power and x86 CPUs for C11, AMD GPUs for OpenCL) remain valid in our revised models. Using the HERD memory model simulator, we show that our overhaul leads to an exponential improvement in simulation time for C11 litmus tests compared with the original model, making exhaustive simulation competitive, time-wise, with the non-exhaustive CDSChecker tool

RAMSTRONG: AN EMPLOYEE WELLNESS INITIATIVE

The RAMSTRONG project’s mission is to create a mobile website accessible online and through the VCU Mobile app that provides VCU employees with user-friendly, accessible resources to support their holistic well-being. The RAMSTRONG project seeks to meet three basic needs. First, while VCU and the Greater Richmond area offer a plethora of resources to promote health, information about these resources is not readily accessible, and especially not accessible from one website or mobile app. RAMSTRONG aims to provide an accessible means for employees to learn about and take advantage of these resources. Second, while a growing body of scientific literature indicates employer sponsored health promotion programs increase job satisfaction, productivity, and retention, these programs are only effective if they are utilized. RAMSTRONG aims to increase their utilization by promoting awareness of their availability. Third, our society invests a substantial sum of resources to the care of those suffering from injury and illness and less to promoting our health and well-being. The RAMSTRONG project is motivated by a vision of a society that invests significantly in the promotion of wellness so as to reduce the incidence of injury and illness and to increase the prevalence of personal and social satisfaction at work and in life. Our model for the RAMSTRONG app draws from the public health concept of the Wheel of Wellness, which specifies eight interrelated and interdependent dimensions of health: emotional, environmental, financial, social, spiritual, occupational, physical, and intellectual. When a person can demonstrate strength and well-being in each of these areas, they are more productive and receive greater satisfaction in life. Universities, including Princeton University, that have implemented similar website resources and the National Wellness Institute define wellness as “an active process through which people become aware of, and make choices toward, a more successful existence”. Our RAMSTRONG website and mobile app will provide employees with an efficient, friendly means for becoming aware of campus and community resources and making choices that actively contribute to individual and community well-being in each of the eight dimensions. It is our hope that with the implementation of this project, VCU employees will have the resources to take charge of their wellness in each dimension and become RAMSTRONG