Margin requirements and volatility : evidence from Canadian stocks

Margin policy is used by regulators for the purpose of inhibiting exceSSIve volatility and stabilizing the stock market in the long run. The effect of this policy on the stock market is widely tested empirically. However, most prior studies are limited in the sense that they investigate the margin requirement for the overall stock market rather than for individual stocks, and the time periods examined are confined to the pre-1974 period as no change in the margin requirement occurred post-1974 in the U.S. This thesis intends to address the above limitations by providing a direct examination of the effect of margin requirement on return, volume, and volatility of individual companies and by using more recent data in the Canadian stock market. Using the methodologies of variance ratio test and event study with conditional volatility (EGARCH) model, we find no convincing evidence that change in margin requirement affects subsequent stock return volatility. We also find similar results for returns and trading volume. These empirical findings lead us to conclude that the use of margin policy by regulators fails to achieve the goal of inhibiting speculating activities and stabilizing volatility.

The information content of Canadian implied volatility indexes

For predicting future volatility, empirical studies find mixed results regarding two issues: (1) whether model free implied volatility has more information content than Black-Scholes model-based implied volatility; (2) whether implied volatility outperforms historical volatilities. In this thesis, we address these two issues using the Canadian financial data. First, we examine the information content and forecasting power between VIXC - a model free implied volatility, and MVX - a model-based implied volatility. The GARCH in-sample test indicates that VIXC subsumes all information that is reflected in MVX. The out-of-sample examination indicates that VIXC is superior to MVX for predicting the next 1-, 5-, 10-, and 22-trading days' realized volatility. Second, we investigate the predictive power between VIXC and alternative volatility forecasts derived from historical index prices. We find that for time horizons lesser than 10-trading days, VIXC provides more accurate forecasts. However, for longer time horizons, the historical volatilities, particularly the random walk, provide better forecasts. We conclude that VIXC cannot incorporate all information contained in historical index prices for predicting future volatility.

Human Endogenous Retrovirus (HERV) Insertional Polymorphisms

Human endogenous retroviruses (HERVs) are the result of ancient germ cell infections of human germ cells by exogenous retroviruses. HERVs belong to the long terminal repeat (LTR) group of retrotransposons that comprise ~8% of the human genome. The majority of the HERVs documented have been truncated and/or incurred lethal mutations and no longer encode functional genes; however a very small number of HERVs seem to maintain functional in making new copies by retrotranspositon as suggested by the identification of a handful of polymorphic HERV insertions in human populations. The objectives of this study were to identify novel insertion of HERVs via analysis of personal genomic data and survey the polymorphism levels of new and known HERV insertions in the human genome. Specifically, this study involves the experimental validation of polymorphic HERV insertion candidates predicted by personal genome-based computation prediction and survey the polymorphism level within the human population based on a set of 30 diverse human DNA samples. Based on computational analysis of a limited number of personal genome sequences, PCR genotyping aided in the identification of 15 dimorphic, 2 trimorphic and 5 fixed full-length HERV-K insertions not previously investigated. These results suggest that the proliferation rate of HERVKs, perhaps also other ERVs, in the human genome may be much higher than we previously appreciated and the recently inserted HERVs exhibit a high level of instability. Throughout this study we have observed the frequent presence of additional forms of genotypes for these HERV insertions, and we propose for the first time the establishment of new genotype reporting nomenclature to reflect all possible combinations of the pre-integration site, solo-LTR and full-length HERV alleles.

Volume-Synchronized Probability of Informed Trading (VPIN), Market Volatility, and High-Frequency Liquidity

We assess the predictive ability of three VPIN metrics on the basis of two highly volatile market events of China, and examine the association between VPIN and toxic-induced volatility through conditional probability analysis and multiple regression. We examine the dynamic relationship on VPIN and high-frequency liquidity using Vector Auto-Regression models, Granger Causality tests, and impulse response analysis. Our results suggest that Bulk Volume VPIN has the best risk-warning effect among major VPIN metrics. VPIN has a positive association with market volatility induced by toxic information flow. Most importantly, we document a positive feedback effect between VPIN and high-frequency liquidity, where a negative liquidity shock boosts up VPIN, which, in turn, leads to further liquidity drain. Our study provides empirical evidence that reflects an intrinsic game between informed traders and market makers when facing toxic information in the high-frequency trading world.