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Volume 22, Numbers 3 & 4 / September/December 2018 , Pages 119-254
 
Multinational Finance Journal, 2018, vol. 22, no. 3/4, pp. 119-172
Abdulilah Ibrahim Alsheikhmubarak , Royal Holloway, University of London, UK    Corresponding Author
Evangelos Giouvris , Royal Holloway, University of London, UK

Abstract:
Modelling the volatility (or kurtosis) of the implied volatility is an important aspect of financial markets when analysing market consensus and risk strategies. The purpose of this study is to evaluate the ability of symmetric and asymmetric GARCH systems to model the volatility of the FTSE 100 Implied Volatility Index (IV). We use GARCH, EGARCH, GJR-GARCH and GARCH-MIDAS to model variance. We also introduce FTSE 100 returns and several macroeconomic variables (UK industrial production, 3M LIBOR, GBP effective exchange rate and unemployment rate) to investigate whether they explain variance. Our results show that market returns is a major explanatory factor besides macroeconomic variables. Also, GARCH (1,1) outperforms other asymmetric models unless there is exceptionally high volatility such as the crisis of 2008 in which case EGARCH performs better. GJR-GARCH is outperformed by all other models. GARCH-MIDAS shows that both macroeconomic variables and market returns are useful when estimating IV.

Keywords : FTSE 100 implied volatility index (IV); GARCH; EGARCH; GJR-GARCH; GARCH-MIDAS; FTSE 100 index returns; macroeconomic variables
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Multinational Finance Journal, 2018, vol. 22, no. 3/4, pp. 173-210
Elyas Elyasiani , Temple University, USA
Luca Gambarelli , University of Modena and Reggio Emilia, Italy
Silvia Muzzioli , University of Modena and Reggio Emilia, Italy    Corresponding Author

Abstract:
The aim of this paper is to propose a simple and unique measure of risk that subsumes the conflicting information contained in volatility and skewness indices and overcomes the limitations of these indices in accurately measuring future fear or greed in the market. To this end, the concept of upside and downside corridor implied volatility, which accounts for the asymmetry in the risk-neutral distribution, is exploited. The risk-asymmetry index is intended to capture the investors’ pricing asymmetry towards upside gains and downside losses. The results show that the proposed risk-asymmetry index can play a crucial role in predicting future returns, at various forecast horizons, since it subsumes the information embedded in both the volatility and skewness indices. Furthermore, the risk-asymmetry index is the only index that, at very high values, possesses the ability to clearly highlight a risky situation for the aggregate stock market.

Keywords : risk-asymmetry; corridor implied volatility; risk-neutral moments; risk measures; return predictability
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Multinational Finance Journal, 2018, vol. 22, no. 3/4, pp. 211-254
Yuriy Zabolotnyuk , Carleton University, Canada    Corresponding Author

Abstract:
This paper employs meta-analysis methodology to reconcile the diverse international empirical evidence on the effects of bond rating announcements on the stock prices of the issuing firms. The random-effects model meta-analysis of 53 published studies and 421 sub-samples of data covering a range of countries and 44,713 bond rating announcements reveals an average cumulative abnormal stock return of -1.64% associated with the bond downgrades and an average cumulative abnormal stock return of 0.28% associated with the bond upgrades. Factors such as initial bond rating, issuer location, announcement period, and rating change size have significant effects on the size of the abnormal stock returns around the rating announcement dates.

Keywords : bond rating announcements; wealth effects; meta-analysis; information asymmetry
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