ASYMMETRIC INFORMATION AND SHOCK AS PORTFOLIO SELECTION CRITERIA: CASE OF THE DJIM 50 US PORTFOLIO

Moghar Adil, Hamza Faris

Abstract


Volatility is an important variable in portfolio management. Generally, it is the level of risk in the market. The purpose of this article is to measure the impact of good and bad news on the evolution and risk associated with these securities in the financial market. To do so, we proceeded to use the EGARCH model (generalized autoregressive heteroskedasticity condition model), the data used in this study correspond to the portfolio Dow Jones Islamic Market 50 US. The results show that good and bad news has different impacts on assets.

 

Article visualizations:

Hit counter

DOI

Keywords


modeling, ARCH, GARCH, EGARCH, news impact curve, innovations

Full Text:

PDF

References


Alexander, C. (2008). Introduction to GARCH models. Market Risk Analysis, 2, 131-199.

Black, F. (1986). Noise. The journal of finance, 41(3), 528-543. doi: 10.1111/j.1540-6261.1986.tb04513.x

Black, F., & Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of political economy, 81(3), 637-654.‏ doi: 10.1086/260062

Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of econometrics, 31(3), 307-327. doi: 10.1016/0304-4076(86)90063-1

Bollerslev, T., Engle, R. F., & Nelson, D. B. (1994). ARCH models. Handbook of econometrics, 4, 2959-3038. doi: 10.1016/s1573-4412(05)80018-2

Britten‐Jones, M., & Neuberger, A. (2000). Option prices, implied price processes, and stochastic volatility. The Journal of Finance, 55(2), 839-866. doi:10.1111/0022-1082.00228

Carmassi, J., Gros, D., & Micossi, S. (2009). The global financial crisis: Causes and cures. JCMS: Journal of Common Market Studies, 47(5), 977-996. doi:10.1111/j.1468-5965.2009.02031.x

Choi, S., & Wohar, M. E. (1992). Implied volatility in options markets and conditional heteroscedasticity in stock markets. Financial Review, 27(4), 503-530. doi:10.1111/j.1540-6288.1992.tb01329.x

Christensen, B. J., & Hansen, C. S. (2002). New evidence on the implied-realized volatility relation. The European Journal of Finance, 8(2), 187-205. doi:10.1080/13518470110071209

Christie, A. A. (1982). The stochastic behavior of common stock variances: Value, leverage and interest rate effects. Journal of financial Economics, 10(4), 407-432. doi:10.1016/0304-405x(82)90018-6

Clements, M. P., & Hendry, D. F. (2008). Economic forecasting in a changing world. Capitalism and Society, 3(2). doi:10.2202/1932-0213.1039

De Goede, M. (2001). Discourses of scientific finance and the failure of long-term capital management. New Political Economy, 6(2), 149-170. doi:10.1080/13563460120060580

DeLong, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1988). The survival of noise traders in financial markets. doi:10.3386/w2715

Engle, R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica: Journal of the Econometric Society, 987-1007. doi:10.2307/1912773

Ewing, B. T., & Malik, F. (2017). Modelling asymmetric volatility in oil prices under structural breaks. Energy Economics, 63, 227-233. doi:10.1016/j.eneco.2017.03.001

Fleming, J. (1998). The quality of market volatility forecasts implied by S&P 100 index option prices. Journal of empirical finance, 5(4), 317-345. doi:10.1016/s0927-5398(98)00002-4

Hamza, F., & Janssen, J. (1998). The mean–semi variances approach to realistic portfolio optimization subject to transaction costs. Applied stochastic models and data analysis, 14(4), 275-283.doi:10.1002/(sici)1099-0747(199812)14:4<275::aid asm364>3.0.co;2-p

Hamza, F., & Janssen, J. (2009). Choix optimal des actifs financiers et gestion de portefeuille. Hermès Science.

Jorion, P. (1995). Predicting volatility in the foreign exchange market. The Journal of Finance, 50(2), 507-528. doi:10.1111/j.1540-6261.1995.tb04793.x

Korkpoe, C. H., & Junior, P. O. (2018). Behaviour of Johannesburg Stock Exchange All Share Index Returns-An Asymmetric GARCH and News Impact Effects Approach. SPOUDAI-Journal of Economics and Business, 68(1), 26-42.

MacKenzie, D. (2003). Long-Term Capital Management and the sociology of arbitrage. Economy and society, 32(3), 349-380. doi:10.1080/03085140303130

Nelson, D. (1991). Conditional heteroskedasticity in asset returns: a new approach. Econometrica, 59, 347-370. doi:10.2307/2938260

Poon, S. H., & Granger, C. W. (2003). Forecasting volatility in financial markets: A review. Journal of economic literature, 41(2), 478-539. DOI: 10.1257/002205103765762743

Veronesi, P. (1999). Stock market overreactions to bad news in good times: a rational expectations equilibrium model. The Review of Financial Studies, 12(5), 975-1007. doi:10.1093/rfs/12.5.975




DOI: http://dx.doi.org/10.46827/ejefr.v0i0.691

Refbacks

  • There are currently no refbacks.


Copyright (c) 2019 Moghar Adil, Hamza Faris

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.

Copyright © 2016 - 2023. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing Group. All rights reserved.

This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and  Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.