Forthcoming articles

 


International Journal of Financial Markets and Derivatives

 

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International Journal of Financial Markets and Derivatives (2 papers in press)

 

Regular Issues

 

  • Improvements in Forecasting of Bank Stock Excess Returns Using the Investor Sentiment Endurance Index: A Comparison with CAPM and Fama-French Models   Order a copy of this article
    by Ling He, K. Michael Casey 
    Abstract: In order to raise the forecasting quality for banking equity costs, this study uses the sentiment endurance (SE) index developed by He (2012) and applies this model to the banking industry. The SE index is used as the risk factor to replace commonly used risk factors, the overall market risk premium, and the Fama-French factors small minus big (SMB), and high minus low (HML). The sentiment endurance index in this study measures changes in the lasting momentum of bank stock prices and can therefore be used to predict future changes in bank stock prices. The results of this study indicate that the monthly rolling out-of-sample forecasts generated by the sentiment endurance model, in general, are significantly more accurate than the CAPM and Fama-French models. When the overall market risk premium or SMB and HML are added into the sentiment endurance index model, respectively, the quality of forecasting based on short rolling periods actually deteriorates and improvements in forecasting quality based on longer rolling periods are trivial. The empirical results indicate there is little additional information contained in the three risk factors when compared to the sentiment endurance index.
    Keywords: investor sentiment endurance index; rolling forecasting.

  • Do simple traders rules perform better than the GARCH model? Evidence from currency options in India   Order a copy of this article
    by Aparna Bhat 
    Abstract: The moneyness and maturity biases empirically observed in the case of the Black-Scholes-Merton (BSM) model have led to the evolution of alternative option-pricing models that attempt to address the shortcomings of the BSM model. One such alternative model is the GARCH model of Duan (1995) which takes into account the heteroscedastic nature of volatility. This paper examines the pricing performance of Duans GARCH model in the context of exchange-traded currency options traded in India. The comparison is made with the sticky-strike and sticky-delta models used by practitioners. These models recognize implied volatility as a function of the options strike price and time to maturity and are easier to implement than the GARCH model which is computationally intensive. The study finds that the practitioners models fare better than the more sophisticated GARCH model in pricing currency options in an emerging market like India.The contribution of this paper lies in the fact that it is one of the few studies that focuses on the empirical performance of the GARCH model in pricing currency options and the only study in the context of currency options in India.
    Keywords: Currency options; GARCH option-pricing model; sticky-strike; sticky-delta; dollar-rupee options.