The Handbook of Trading: Strategies for Navigating and Profiting from Currency, Bond, and Stock Markets by Greg N. Gregoriou

Author:Greg N. Gregoriou
Language: eng
Format: epub, pdf
Published: 2018-07-02T16:00:00+00:00

RESULTS; CONCLUSION

We begin the presentation of our results by estimating the set of Equation (14.6) and Equation (14.8) for the spot market indexes prior to and after the introduction of ETFs. It is interesting to note here the complete absence of significant feedback trading both before as well as after the introduction of ETFs; more specifically, as Table 14.2 indicates, the feedback coefficient ( φ 1) is indicative of statistically insignificant positive feedback trading for all tests, thus implying that noise investors do not bear a decisive presence in our sample markets. Moreover, the φ 0 coefficient is reflective of insignificant first-order autocorrelation (whose sign switches from positive to negative in the aftermath of the introduction of ETFs), suggesting that the spot markets in the UK, France, and Germany are characterized by enhanced efficiency. Moving to the conditional variance process, we notice that δ remains consistently positive and significant throughout our tests, thus suggesting that negative innovations tend to increase volatility more than positive ones, something further confirmed when calculating the asymmetric ratio ( β + δ)/ β. 5 This volatility asymmetry appears more pronounced during the post-ETF period as indicated by the higher values of the δ coefficient (and the higher absolute values of the asymmetric ratio). 6 What is more, volatility exhibits high persistence, as reflected through the statistically significant γ coefficient, thus denoting the significant impact of lagged volatility over contemporaneous volatility. To illustrate this persistence, we calculate the volatility half-life as HL = ln (0.5)/ln( β + γ + δ/2), in line with Harris and Pisedtasalasai (2006). Our results indicate that volatility is highly persistent, with its persistence, however. exhibiting signs of decline in the post-ETF period for all markets.

Table 14.1 Descriptive Statistics

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