Three essays on financial markets
I examine three issues driven by some features of financial markets.
The first chapter examines the degree of fat-tailedness of stock returns in Asian markets. Whether the variance of stock returns is infinite has an important implication for the applicability of financial models. Applying the extreme value framework, I find that the distribution of Asian stock returns is fat-tailed but has finite variance and is similar to that observed in developed markets. It suggests that financial models incorporating variance would work equally well for Asian market data as it is for developed market data. To test this conjecture, I apply the Value-at- Risk models to both data and find no significant difference in performance.
The second chapter examines the hypothesis of Avramov, Chordia, and Goyal (2006) that the negative return-volatility relationship is governed by the trading dynamics of informed and uninformed traders. Based on the Nasdaq-100 index futures, I find that only the selling activity of uninformed traders influences negative volatility-lagged return and that small-size trades have a greater impact than large-size trades.
The third chapter examines the impact of listing exchanges on the listed stocks in the post-2000 period, a period in which the structure of the US stock exchanges have changed and converged substantially. I find that the listed firms experience significant changes in trading costs and activities, price volatility, price reaction, and investor recognition when they switch their stock listings from one exchange to another. However, the change in transaction costs is smaller than previously documented in literature and drops even further in the mid 2000s, confirming the increased structural similarity of the US stock exchanges.