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Stock market momentum, business conditions, and GARCH option pricing models

  • Chiang, Min-Hsien
  • Huang, Hsin-Yi
Registered author(s):

    This paper examines the forecasting performance of GARCH option pricing models from a market momentum perspective, and the possible impacts of financial crises and business conditions are also examined. The empirical results demonstrate that market momentum impacts the forecasting performance of GARCH option pricing models. The EGARCH model performs better under downward market momentum, while the standard GARCH performs better under upward market momentum. In addition, parsimonious models generally outperform richly parameterized ones. The above findings are robust to financial crises, and the results further demonstrate that business conditions influence the forecasting performance of GARCH option pricing models.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0927539811000053
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    Article provided by Elsevier in its journal Journal of Empirical Finance.

    Volume (Year): 18 (2011)
    Issue (Month): 3 (June)
    Pages: 488-505

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    Handle: RePEc:eee:empfin:v:18:y:2011:i:3:p:488-505
    Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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