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Microfoundations in heteroscedasticity: A loss-aversion-based explanation of asymmetric GARCH models

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Tartalom: http://real.mtak.hu/40023/
Archívum: MTA Könyvtár
Gyűjtemény: Status = Published



Type = Conference or Workshop Item
Cím:
Microfoundations in heteroscedasticity: A loss-aversion-based explanation of asymmetric GARCH models
Létrehozó:
Omros, Mihály
Timotity, Dusán
Dátum:
2016-06-13
Téma:
HB4 Dynamics of the economy / gazdasági folyamatok
HG Finance / pénzügy
HG4 Stock market, exchange / tőzsde
Tartalmi leírás:
This paper provides a theoretical explanation for the heteroscedasticity of asset returns. In line with existing empirical results, our model yields an asymmetric relationship between stock return and volatility. Based on the simple assumptions that investors behave according to Prospect Theory and are subject to mental accounting in a dynamic setting, we analytically derive the unit-root versions of two of the best fitting heteroscedasticity models (EGARCH and TGARCH). The model is supported by our empirical results from two different sides: first, analysis of individual trading data shows that investors indeed become risk-seeking right after losses and more risk-averse subsequent to gains; second, the parameter estimation of our volatility model yields the predicted negative relationship between abnormal returns and subsequent volatility.
Nyelv:
angol
Típus:
Conference or Workshop Item
PeerReviewed
info:eu-repo/semantics/conferenceObject
Formátum:
text
Azonosító:
Omros, Mihály and Timotity, Dusán (2016) Microfoundations in heteroscedasticity: A loss-aversion-based explanation of asymmetric GARCH models. In: The 14th INFINITI Conference on International Finance, 13/06/2016-14/06/2016, Dublin, Ireland.
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