Trading with Asymmetric Volatility Spillovers
AbstractWe study the profitability of trading strategies based on volatility spillovers between large and small firms. By using the Volatility Impulse-Response Function of Lin (1997) and its extensions, we detect that any volatility shock coming from small companies is important to large companies, but the reverse is only true for negative shocks coming from large firms. To exploit these asymmetric patterns in volatility, different trading rules are designed based on the inverse relationship existing between expected return and volatility. We find that most strategies generate excess after-transaction cost profits, especially after "very bad news" and "very good news" coming from large or small firm markets. These results are of special interest because of their implications for risk and portfolio management. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.
Volume (Year): 34 (2007-11)
Issue (Month): 9-10 ()
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- George Milunovich & Susan Thorp, 2005.
"Valuing Volatility Spillovers,"
- Andreas Andrikopoulos & Timotheos Angelidis, 2008.
"Idiosyncratic risk, returns and liquidity in the London Stock Exchange: a spillover approach,"
0017, University of Peloponnese, Department of Economics.
- Angelidis, Timotheos & Andrikopoulos, Andreas, 2010. "Idiosyncratic risk, returns and liquidity in the London Stock Exchange: A spillover approach," International Review of Financial Analysis, Elsevier, vol. 19(3), pages 214-221, June.
- Sinem Derindere KOSEOGLU & Emrah Ismail CEVIK, 2013. "Testing for Causality in Mean and Variance between the Stock Market and the Foreign Exchange Market: An Application to the Major Central and Eastern European Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(1), pages 65-86, March.
- Jullavut Kittiakarasakun & Yiuman Tse & George H.K. Wang, 2012. "The impact of trades by traders on asymmetric volatility for Nasdaq-100 index futures," Managerial Finance, Emerald Group Publishing, vol. 38(8), pages 752-767, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.