Date of Award
Spring 5-2019
Degree Type
Dissertation-Restricted
Degree Name
Ph.D.
Degree Program
Financial Economics
Department
Economics and Finance
Major Professor
Dr. Atsuyuki Naka
Second Advisor
Dr. Walter J Lane
Third Advisor
Dr. Arja H Turunen-Red
Fourth Advisor
Dr. Duygu Zirek
Abstract
The objective of this paper is to examine the impact of implementing the static and dynamic volatility interruption rule on idiosyncratic volatility and stock returns in Nasdaq Stockholm. Using EGARCH and GARCH models to estimate the conditional idiosyncratic volatility, we find that the conditional idiosyncratic volatility and stock returns increase as stock prices hit the upper static or dynamic volatility interruption limits. Conversely, we find that the conditional idiosyncratic volatility and stock returns decrease as stock prices hit the lower static or dynamic volatility interruption limit. We also find that the conditional idiosyncratic volatility is higher when stock prices reach the upper dynamic limit than when they reach the upper static limit. Furthermore, we compare the conditional idiosyncratic volatility and stock returns on the limit hit days to the day before and after the limit hit events and find that the conditional idiosyncratic volatility and stock returns are more volatile on the limits hit days. To test the volatility spill-over hypothesis, we set a range of a two-day window after limit hit events and find no evidence for volatility spill-over one or two days after the limit hit event, indicating that the static and dynamic volatility interruption rule is effective in curbing the volatility. Finally, we sort stocks by their size and find that small market cap stocks gain higher returns than larger market cap stocks upon reaching the upper limits, both static and dynamic.
Recommended Citation
Alsunbul, Saad A., "Volatility Interruptions, idiosyncratic risk, and stock return" (2019). University of New Orleans Theses and Dissertations. 2580.
https://scholarworks.uno.edu/td/2580
Rights
The University of New Orleans and its agents retain the non-exclusive license to archive and make accessible this dissertation or thesis in whole or in part in all forms of media, now or hereafter known. The author retains all other ownership rights to the copyright of the thesis or dissertation.