Eastern Europe has been undergoing rapid structural change over the last 10 years and one of the most interesting and dramatic of these changes has involved the foundation of a number of new financial markets and the creation of a system of private ownership for industry almost from scratch. Analysing this data poses a number of new and interesting problems; There is often thin trading so that a share price may be unchanged for weeks as no trades occur and then it may rapidly change to a quite different value as a trade occurs. The movement in share prices is often also truncated artificially by the market regulators so that movements greater than 10-15% may be stopped on any one day. Finally in the early periods of trading market participants may be very ill informed as to both the particular shares being traded and the general process of operating a market. So conventional finance models may prove a very poor approximation to the behaviour of these markets as those models are typically founded on the twin assumptions of rational expectations and market efficiency. This paper will address these problems, a Kalman filter process will be proposed for filtering a continuos series of trade prices from the observed thin data. This will then be extended to allow for the truncation problem. The filtered series will then be used to build time series models of market behaviour which mix GARCH-M behaviour with time varying parameters to mimic the process of learning which takes place as the infant market becomes increasingly efficient and approaches the behaviour of standard western markets.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).
Related research
Keywords:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: