Intraday and Weekend Volatility Patterns- Implications for Option Pricing

This study examines the intraday and weekend volatility on the German DAX. The intraday volatility is partitioned into smaller intervals and compared to a whole day’s volatility. The estimated intraday variance is U-shaped and the weekend variance is estimated to 19 % of a normal trading day. The patterns in the intraday and weekend volatility are used to develop an extension to the Black and Scholes formula to form a new time basis. Calendar or trading days are commonly used for measuring time in option pricing. The Continuous Time using Discrete Approximations model (CTDA) developed in this study uses a measure of time with smaller intervals, approaching continuous time. The model presented accounts for the lapse of time during trading only. Arbitrage pricing suggests that the option price equals the expected cost of hedging volatility during the option’s remaining life. In this model, time is allowed to lapse as volatility occurs on an intraday basis. The measure of time is modified in CTDA to correct for the non-constant volatility and to account for the patterns in volatility.

Overconfidence and investor size

Recent research documents that institutional or large investors act as antagonists to other investors by showing opposite behavior following disclosure of new information. Using an extremely comprehensive official transactions data set from Finland, we set out to explore the interrelation between investor size and behavior. More specifically, we test whether investor size is positively (negatively) correlated with investor reaction following positive (negative) news. We document robust evidence of that investor size affects investor behavior under new information, as larger investors on average react more positively (negatively) to good (bad) news than smaller investors. In the light of this study it seems increasingly feasible that several recent findings of heterogeneous investor behavior are functions of differences in overconfidence.

Swedish Premium Pension Funds: Attributes and Performance

This study investigates the relationship between fund attributes and performance. The focus is on funds available in the Swedish Premium Pension system (PPM-funds). The aim has been to investigate whether administration fees, manager tenure or past performance are of importance for pension savers when they pick their PPM-funds. The results indicate that high fees are a disadvantage to pension savers investing in bond funds but not to those investing in stock funds. Manager tenure has no relationship with performance. There is evidence of performance persistency in most of the investigated fund categories.

Panel Cointegration of Chinese A and B Shares

This paper uses panel unit root and cointegration methods to test the stationarity of the premium on domestic investors’ A shares over foreign investors’ B shares and cointegration between the A and B share prices on the Chinese stock exchanges. We find that the A share price premium is nonstationary until 2001, when the A and B share markets were partially merged, and that the A and B share prices are cointegrated in the panel.Cointegration is more likely to be found for firms in the service sector and for firms that issued B shares recently.