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Student Number 984208028
Author Yu-Cheng Yeh(¸­¨|¸Û)
Author's Email Address slimeemils.yeh@gmail.com
Statistics This thesis had been viewed 650 times. Download 137 times.
Department Finance
Year 2010
Semester 2
Degree Master
Type of Document Master's Thesis
Language English
Title Rational and Sentimental Components in Long-term Stock Volatility
Date of Defense 2011-06-29
Page Count 51
Keyword
  • investor sentiment
  • long run risk
  • stock market volatility
  • Abstract How to precisely forecast the uncertainty of asset return is one of the most important issues in finance. This thesis aims to construct a new innovative volatility model by reconciling both the macroeconomic fundamentals and investor sentimental variables from both the rational and behavioral literature, with an application to modern risk management. Fundamental and sentimental factors are employed to capture the long-run volatility of asset return via the spline-GARCH proposed by Engle and Rangel (2008). Our model is successful in allowing for behavioral biases from the emotional and sentimental behaviors among investors during the period of financial crisis. Specifically, we characterize how much both parts contributes to the total variation of price changes and found that the fundamental contributed variations dominated. However, the proportion from the behavioral factor explained variation tends to grow in the recent years. Our empirical results suggest that the information disclosed from both parts is shown to improve the performance of volatility modeling, particularly in the longer horizon, and in tail risk management.
    Table of Content ¤¤¤åºK­nI
    ABSTRACTII
    »xÁÂIII
    CONTENTSIV
    LIST OF FIGURESV
    LIST OF TABLESVI
    1.INTRODUCTION1
    2.STATE VARIABLES FOR FINANCIAL RISKS AND TRANSFORMATIONS5
    2.1.Macroeconomic Fundamentals:6
    2.2.Factors of Investor Sentiment:6
    2.2.1.CONSUMER CONFIDENCE INDEX6
    2.2.2.SENTIMENT¡æ7
    2.3.Velocity8
    2.4.Empirical Mode Decomposition8
    3. EMPIRICAL MODEL SPECIFICATIONS12
    3.1.Spline-GARCH12
    3.2.Spline-GARCH with Fundamentals and Sentiments12
    4.DATA AND EMPIRICAL RESULTS14
    4.1.Data14
    4.2.Anecdotal History and Investor Sentiment Indexes, 1967-200715
    4.3.The decomposition of variables16
    4.4.Result24
    5.EMPIRICAL APPLICATION31
    5.1.The Term Structure of Volatility31
    5.2.Forecast the Term Structure of Value at Risk34
    6.CONCLUSION39
    REFERENCE41
    APPENDIX44
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    [33]Yeh, J.-H., and T.-S., Huang, ¡§Modeling Long-Run Risk with Macroeconomic Fundamentals¡¨, Working paper.
    Advisor
  • Jin-Huei Yeh(¸­ÀAÀ²)
  • Files
  • 984208028.pdf
  • approve in 2 years
    Date of Submission 2011-07-25

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