A Three-Stage Model of the Volume-Volatility Relation in the Junk Bond Market during the 2007–2008 Financial Crisis

2019 ◽  
Author(s):  
Ehab Abdel-Tawab Yamani
2019 ◽  
Vol 46 (1) ◽  
pp. 139-158
Author(s):  
Ehab Yamani

Purpose The purpose of this paper is to examine the joint dynamics of volatility–volume relation in the high-yield (junk) corporate bond market during the 2007–2008 financial crisis. Design/methodology/approach The author proposes a new empirical model of three-stage equations to better estimate the volume–volatility relation that helps in alleviating three econometrical problems. In Stage 1, the author estimates the fitted values of trading volume using a censored regression model, to alleviate the truncation problems of using Transaction Reporting and Compliance Engine data. In Stage 2, the author calculates the fitted values of bond return volatility using asymmetric Sign-GARCH model, to control for the asymmetric volatility in return series. In Stage 3, the author uses the fitted values of trading volume from the censored regression model (Stage 1) and the fitted values of return volatility from the GARCH model (Stage 2), to better alleviate the endogeneity problems between both variables. Findings The central finding is that conclusions about the statistical significance and the direction of the volume–volatility relationship in the junk bond market are dependent on the econometric methodology used. Originality/value From a practitioner perspective, it is important for professional traders holding positions in fixed income securities in their trading accounts to be aware of their asymmetric time-varying volume–volatility shifting trends. Such knowledge helps traders diversify their positions and manage their portfolios more appropriately.


Author(s):  
Michael Harris

What do pure mathematicians do, and why do they do it? Looking beyond the conventional answers, this book offers an eclectic panorama of the lives and values and hopes and fears of mathematicians in the twenty-first century, assembling material from a startlingly diverse assortment of scholarly, journalistic, and pop culture sources. Drawing on the author's personal experiences as well as the thoughts and opinions of mathematicians from Archimedes and Omar Khayyám to such contemporary giants as Alexander Grothendieck and Robert Langlands, the book reveals the charisma and romance of mathematics as well as its darker side. In this portrait of mathematics as a community united around a set of common intellectual, ethical, and existential challenges, the book touches on a wide variety of questions, such as: Are mathematicians to blame for the 2008 financial crisis? How can we talk about the ideas we were born too soon to understand? And how should you react if you are asked to explain number theory at a dinner party? The book takes readers on an unapologetic guided tour of the mathematical life, from the philosophy and sociology of mathematics to its reflections in film and popular music, with detours through the mathematical and mystical traditions of Russia, India, medieval Islam, the Bronx, and beyond.


2012 ◽  
Author(s):  
Ivelina Pavlova ◽  
Ann Marie Hibbert ◽  
Joel R. Barber ◽  
Krishnan Dandapani

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