Does trading volume really explain stock returns volatility?

Assuming that the variance of daily price changes and trading volume are both driven by the same latent variable measuring the number of price-relevant information arriving on the market, the Mixture of Distribution Hypothesis (MDH) represents an intuitive and appealing explanation for the empirically observed correlation between volume and volatility of speculative assets. This paper investigates to which extent the temporal dependence of volatility and volume is compatible with a MDH model through a systematic analysis of the long memory properties of power transformations of both series. It is found that the fractional differencing parameter of the volatility series reaches its maximum for a power transformation around and then decreases for other order moments while the differencing parameter of the trading volume remains remarkably unchanged. The volatility process thus exhibits a high degree of intermittence whereas the volume dynamic appears much smoother. The results suggest that volatility and volume may share common short-term movements but that their long-run behavior is fundamentally different.Volatility Persistence, Long Memory, Trading Volume

Multiple Potential Payers and Sovereign Bond Prices

Sovereign bonds are usually priced under the assumption that only the sovereign issuer may be responsible of their repayment. In some cases however, bondholders may legitimately expect to be repaid by more than one agent. For example, when a country breaks-up, successor states may agree to recognize their responsibility for part of the debt. Other extreme events, such as repudiations, may lead (and have led) bondholders to consider several bailout candidates at the same point in time. This paper first discusses the theoretical financial implications stemming from an infrequent and challenging situation, namely the existence of multiple potential payers. Then, through a historical precedent, the 1918 Russian repudiation, the paper confirms that the existence of multiple potential payers has a diversification effect which lowers the volatility of the bond price and increases its value. These results are strengthened by a comparison with a closely related standard case of default.Sovereign bonds; Repudiation; Default; Portfolio diversification; Multiple payers; Russia; Romania; Financial history.

A simple method for variance shift detection at unknown time points

Financial literature considers volatility as a good proxy for the risk level and thus the crucial parameter in many financial techniques and strategies. As such, the aim of this paper is to analyse the evolution of time series volatility and detect significant long-term variance changes. Building up on the variance ratio detection technique introduced by Tsay (1988), our paper extends it in two ways: first, we propose the computation of a moving variance ratio implemented on a selected part of the series, thus reducing the amount of calculus and increasing the reliability and second, as in reality permanent variance changes are almost inexistent, we proceed to an adjustment on a specified part of the series only after the detected variance change. Our moving variance ratio technique proves its efficiency in detecting variance changes and removing them from the series, both on simulated and real financial data. More specifically, two significant variance changes are detected within the series of the Hang Seng daily log-returns between 1994 and 2007: the first one on August 15, 1997 and can be linked to the Asian financial crisis, and the second one on July 27, 2001 corresponding to the beginning of a high volatility regime in emerging markets following the Internet bubble crash along with the first signs of the financial crisis in Argentina.Moving Variance Ratio, Variance Changes, Series Adjustment

The dynamics of the volatility – trading volume relationship: New evidence from developed and emerging markets

This paper empirically investigates whether there is an evolution in the relation between stock market trading volume and volatility in 23 developed and 15 emerging markets. To answer this question, we develop a dynamic application of the TARCH (1, 1) model and first prove that the relationship is variable through time. Then, we focus our analysis on three major financial events, namely the Asian Crisis, the Dot Com bubble burst and the Subprime crisis. We find that the explanatory power of volume is greater during these periods. Finally, we show that the sign of the relationship cannot be clearly set for a specific country or sub group of developed or emerging markets.Mixture of distribution hypothesis, TARCH model, Conditional variance, Trading volume

Comment expliquer la performance financière de l’investissement conforme à la Charia ?

De nombreuses études ont permis de conclure que la performance financière de l’Investissement Conforme à la Charia (ICC) ou islamique vis-à-vis de l’Investissement Conventionnel (IC) est statistiquement similaire. Un tel résultat semble aller à l’encontre de la théorie moderne du portefeuille. L’objectif de cet article consiste à apporter des éléments d’explication à ces résultats contre-intuitifs issus d’un corpus empirique constitué de 37 études. Nous montrons via un cas de reconstruction indicielle que l’exclusion du secteur financier combinée à des méthodes de filtrage négatives pro-cycliques joue un rôle prépondérant dans l’explication de la performance financière de l’ICC.Many studies have set forth that Shariah Compliant Investments (SCI) and Conventional Investments (CI) record similar financial performances. Such a result goes against the basic principles of modern portfolio theory. The aim of this paper is to provide several explanations for these counterintuitive results using an empirical corpus composed by 37 studies. Through a case of index reconstruction, we set forth that the exclusion of the financial sector combined with pro-cyclical negative screening methods play an important role in explaining the financial performance of the SCI.Numerosos estudios han permitido concluir que el rendimiento financiero de la Inversión Conforme a la Sharía (ICS) en comparación con la Inversión Convencional (IC) es estadísticamente similar. Un resultado tal parece ir en contra de la teoría moderna de la cartera. El objetivo de este artículo consiste en aportar elementos explicativos a estos resultados contraintuitivos sacados de un corpus empírico constituido por 37 estudios. Enseñamos a través de un caso de reconstrucción de índice que la exclusión del sector financiero combinada con métodos de filtraje negativos procíclicos desempeña un papel determinante en la explicación del rendimiento financiero de la ICS

Comment expliquer la performance financière de l’investissement conforme à la Charia ?

De nombreuses études ont permis de conclure que la performance financière de l’Investissement Conforme à la Charia (ICC) ou islamique vis-à-vis de l’Investissement Conventionnel (IC) est statistiquement similaire. Un tel résultat semble aller à l’encontre de la théorie moderne du portefeuille. L’objectif de cet article consiste à apporter des éléments d’explication à ces résultats contre-intuitifs issus d’un corpus empirique constitué de 37 études. Nous montrons via un cas de reconstruction indicielle que l’exclusion du secteur financier combinée à des méthodes de filtrage négatives pro-cycliques joue un rôle prépondérant dans l’explication de la performance financière de l’ICC.Many studies have set forth that Shariah Compliant Investments (SCI) and Conventional Investments (CI) record similar financial performances. Such a result goes against the basic principles of modern portfolio theory. The aim of this paper is to provide several explanations for these counterintuitive results using an empirical corpus composed by 37 studies. Through a case of index reconstruction, we set forth that the exclusion of the financial sector combined with pro-cyclical negative screening methods play an important role in explaining the financial performance of the SCI.Numerosos estudios han permitido concluir que el rendimiento financiero de la Inversión Conforme a la Sharía (ICS) en comparación con la Inversión Convencional (IC) es estadísticamente similar. Un resultado tal parece ir en contra de la teoría moderna de la cartera. El objetivo de este artículo consiste en aportar elementos explicativos a estos resultados contraintuitivos sacados de un corpus empírico constituido por 37 estudios. Enseñamos a través de un caso de reconstrucción de índice que la exclusión del sector financiero combinada con métodos de filtraje negativos procíclicos desempeña un papel determinante en la explicación del rendimiento financiero de la ICS

Entre la peste et le choléra: le détenteur d'obligations peut préférer la répudiation au défaut

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Crise bancaire: "cette fois c'est différent"... ou pas?

National audienc

Better the devil you know: Home and sectoral biases in bank lending

International audienceThis paper empirically investigates banks’ lending and the extent to which they are influenced by specific preferences in terms of geographical location and industry. We study whether banks develop a field of expertise and focus on it, or whether they prefer to grant loans quite evenly among countries and industries. We manually built an original database of syndicated loans for banks in the four major banking systems in the eurozone, to estimate the determinants of loans’ amounts between 2005 and 2013. Our findings highlight a domestic bias and a sectoral bias with banks lending larger amounts to their domestic borrowers and to industries they are more familiar with

Multiple potential payers and sovereign bond prices

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