No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns

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 heteroskedastic, or QGARCH, model). Our model is asymmetric and helps to explain the negative skewness and excess kurtosis of U.S. monthly and daily stock returns over the period 1926–1988. We find that volatility feedback normally has little effect on returns, but it can be important during periods of high volatility.Economic

No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns

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 model is asymmetric, because volatility feedback amplifies large negative stock returns and dampens large positive returns, making stock returns negatively skewed and increasing the potential for large crashes. The model also implies that volatility feedback is more important when volatility is high. In U.S. monthly and daily data in the period 1926-88, the asymmetric model fits the data better than the standard GARCH model, accounting for almost half the skewness and excess kurtosis of standard monthly GARCH residuals. Estimated volatility discounts on the stock market range from 1% in normal times to 13% after the stock market crash of October 1987 and 25% in the early 1930's. However volatility feedback has little effect on the unconditional variance of stock returns.

A Recurrent Mutation in KCNA2 as a Novel Cause of Hereditary Spastic Paraplegia and Ataxia

The hereditary spastic paraplegias (HSPs) are heterogeneous neurodegenerative disorders with over 50 known causative genes. We identified a recurrent mutation in KCNA2 (c.881G>A, p.R294H), encoding the voltage-gated K+-channel, K(V)1.2, in two unrelated families with HSP, intellectual disability (ID), and ataxia. Follow-up analysis of >2,000 patients with various neurological phenotypes identified a de novo p.R294H mutation in a proband with ataxia and ID. Two-electrode voltage-clamp recordings of Xenopus laevis oocytes expressing mutant KV1.2 channels showed loss of function with a dominant-negative effect. Our findings highlight the phenotypic spectrum of a recurrent KCNA2 mutation, implicating ion channel dysfunction as a novel HSP disease mechanism.Peer reviewe

2001. Are Corporations Reducing or Taking Risks with Derivatives

Abstract: 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 large u.s. corporations, we investigate whether firms systematically reduce or increase their riskiness with derivatives. We find that many firms manage their exposures with large derivatives positions. Nonetheless, compared to firms that do not use financial derivatives, firms that use derivatives display few, if any, measurable differences in risk that are associated with the use of derivatives