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Identifying Major Shocks in Market Volatility and Their Impact on Trading Strategies

In: Advances In Quantitative Analysis Of Finance And Accounting

Author

Listed:
  • Pauline Shum

    (Schulich School of Business, York University, 4700 Keele St., Toronto, ON, Canada M3J 1P3, Canada)

  • Kevin X. Zhu

    (Ibbotson Associates/Morningstar, 225 North Michigan Ave., Suite 700, Chicago, IL 60601, USA)

Abstract

Major political and financial events, such as the invasion of Kuwait by Iraq and the 1997 Asian Financial Crisis, create great uncertainty in the economy. Accordingly, they have a strong influence on the stock market. In addition, the unexpected shifts in market volatility can last for days or months. The main goal of this paper is to identify the periods in which investors experience major shocks in market volatility in the US. As an interesting extension, we also study the impact of these shocks on the performance of two popular trading strategies.

Suggested Citation

  • Pauline Shum & Kevin X. Zhu, 2007. "Identifying Major Shocks in Market Volatility and Their Impact on Trading Strategies," World Scientific Book Chapters, in: Cheng-Few Lee (ed.), Advances In Quantitative Analysis Of Finance And Accounting, chapter 13, pages 259-281, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812772213_0013
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