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

Pauline Shum and Kevin X. Zhu
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Kevin X. Zhu: Ibbotson Associates/Morningstar, 225 North Michigan Ave., Suite 700, Chicago, IL 60601, USA

Chapter 13 in Advances in Quantitative Analysis of Finance and Accounting, 2007, pp 259-281 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractMajor 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.

Keywords: Monte Carlo Simulations; REIT; IPO; Fractional Integration; Seasonality; Long Memory; Macroeconomic Shocks; VAR; Interest Rates (search for similar items in EconPapers)
Date: 2007
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