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High Volatile Markets HAR-RV and Macroeconomic News.

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Presentation on theme: "High Volatile Markets HAR-RV and Macroeconomic News."— Presentation transcript:

1 High Volatile Markets HAR-RV and Macroeconomic News

2 Motivation Examine how HAR-RV model differs in the financial sector data from 1997 compared to post July 2007 and post September 15 2008 Examine how Macroeconomic News: Feds Fund Rate and the Nonfarm Payroll Announcements Affect RV

3 Financial Sector Data JPM (JP Morgan) BK (new) (Bank of New York Mellon) BAC (Bank of America) AXP (American Express) ALL (Allstate) Others Not Included Because of Data Differences

4 Financial Sector Data Equally Weighted Modify data so that stock splits do not affect the RV Portfolio: 4/10/1997 through 1/7/2009 (equally weighted)

5 HAR-RV

6 Data Points From 19972900 Post July 2007356 Post Sept 15 200876

7 HAR-RV

8 HAR-RV for Full Data Set Using Newey West Standard Errors Regression withNewey-Weststandard errorsNumber of obs =2900.000 maximum lag: 44F( 3, 2896) =1380.470 Prob > F =0.000 Newey-West RV(t+1)Coef.Std. Err. tP>t [95% Conf.Interval] RV(t)0.413.0572137 7.210.000.30036510.525 RV(t-5,t)0.337.0502072 6.710.000.23822360.435 RV(t-22,t)0.167.0606095 2.750.006.04811950.286 _cons1.021.2419986 4.220.000.54650461.496

9 HAR-RV: Financial Crisis. newey RV(t+1) RV(t) RV(t-5,t) RV(t-22,t), lag(44) Regression with Newey-West standard errorsNumber of obs =356.000 maximum lag: 44F( 3, 352) =325.170 Prob > F =0.000 Newey-West RV(t+1) Coef. Std. Err. tP>t [95% Conf.Interval] RV(t).3912903.0707588 5.530.000.25212710.530 RV(t-5,t).348953.0630994 5.530.000.22485380.473 RV(t-22,t).1119859.0714758 1.570.118 -.02858740.253 _cons 4.713085 1.46527 3.220.001 1.83137.595

10 HAR-RV: Post Lehman. newey RV(t+1) RV(t) RV(t-5,t) RV(t-22,t), lag(44) Regression with Newey-West standard errorsNumber of obs =76.000 maximum lag: 44F( 3, 72) =8.310 Prob > F =0.000 Newey-West RV(t+1) Coef. Std. Err. tP>t [95% Conf.Interval] RV(t).3138935.0929552 3.380.001.12859070.499 RV(t-5,t).3063585.1567351 1.950.055 -.00608720.619 RV(t-22,t) -.3376104.1327388 -2.540.013 -.6022204-0.073 _cons 51.48582 17.5348 2.940.004 16.5308386.441

11

12 HAR-RV with Fed Factor: Full Data Regression withNewey-Weststandard errorsNumber of obs =2900.000 maximum lag: 44F( 4, 2895) =1034.370 Prob > F =0.000 Newey-West RV(t+1)Coef.Std. Err. tP>t [95% Conf.Interval] RV(t)0.415.0582077 7.120.000.30040940.529 RV(t-5,t)0.337.0497956 6.770.000.23928390.435 RV(t-22,t)0.163.0596337 2.730.006.04614640.280 FedIndicator(t+1)4.6311.766731 2.620.009 1.1671388.095 _cons0.974.2419073 4.030.000.49953921.448

13 Regression withNewey-Weststandard errorsNumber of obs = 2900 maximum lag: 44F( 5, 2894) = 825.63 Prob > F =0.0000 Newey-West RV(t+1)Coef.Std. Err. tP>t [95% Conf. RV(t)0.415.0588426 7.050.000.2996637 RV(t-5,t)0.337.0495658 6.800.000.2397886 RV(t-22,t)0.159.0585163 2.720.007.0446186 FedIndicator(t+1)7.9103.073039 2.570.010 1.884336 FedPositive(t+1)-6.9533.175657 -2.190.029 -13.18013 _cons1.030.2396987 4.300.000.5601226 HAR-RV With Decision and Sign of Decision Regression withNewey-Weststandard errorsNumber of obs = maximum lag: 44F( 5, 2894) = 825.63 Prob > F = 0.0000 Newey-West RV(t+1)Coef.Std. Err. tP>t [95% Conf. RV(t)0.415.0588426 7.050.000.2996637 RV(t-5,t)0.337.0495658 6.800.000.2397886 RV(t-22,t)0.159.0585163 2.720.007.0446186 FedIndicator(t+1)0.957.6770606 1.410.158 -.3710226 FedNegative(t+1)6.9533.175657 2.190.029.7265776 _cons1.030.2396987 4.300.000.5601226

14 HAR-RV with Fed Direction Changes: Full Data Set. newey RV(t+1) RV(t) RV(t-5,t) RV(t-22,t) FedNegative(t+1) FedPositive(t+1),lag(44) Regression with Newey-West standard errorsNumber of obs =2900.000 maximum lag: 44F( 5, 2894) =825.630 Prob > F =0.000 Newey-West RV(t+1) Coef. Std. Err. tP>t [95% Conf.Interval] RV(t).415.0588426 7.050.000.29966370.530 RV(t-5,t).3370.0495658 6.800.000.23978860.434 RV(t-22,t).1594.0585163 2.720.007.04461860.274 FedNegative(t+1) 7.910 3.073039 2.570.010 1.88433613.935 FedPostivie(t+1).9565.6770606 1.410.158 -.37102262.284 _cons 1.030.2396987 4.300.000.56012261.500

15 HAR-RV with Rate Change newey RV(t+1) RV(t)RV(t-5,t) RV(t-22,t) FedChange(t+1), lag(44) Regression withNewey-West standard errorsNumber of obs =2900.000 maximum lag: 44F( 4, 2895) =1018.980 Prob > F =0.000 Newey-West RV(t+1)Coef. Std. Err. tP>t [95% Conf.Interval] RV(t).4128365.0584136 7.070.000.29830010.527 RV(t-5,t).3382032.0496406 6.810.000.24086870.436 RV(t-22,t).1590522.0592867 2.680.007.04280370.275 FedChange(t+1)-13.13035 5.702837 -2.300.021 -24.31239-1.948 _cons1.104633.2428741 4.550.000.6284091.581

16 Unemployment Rate YearJanFebMarAprMayJunJulAugSepOctNovDecAnnual 1997 230301312291256253283-18508339303299 1998 270189144277401212119352218193284342 1999 121410106376213266291192202408294 2000 249121472286225-461633122-11231138 2001 -1661-30-281-44-128-125-160-244-325-292-178 2002 -132-147-24-85-745-97-16-551268-156 2003 83-158-212-49-6-225-4210320318124 2004 15043338250310814712116035164132 2005 1822211213122122593221908798380160 2006 294274282151247018614914782261219 2007 180361843515654-65-28100165215120 2008 -72-144-122-160-137-161-128-175-321-380-597-681 2009 -741-651(p)-663(p)

17 Insignificance of Employment Report on RV newey RV(t+1) EmploymentChange(t+1), lag(44) Regression with Newey- Weststandard errorsNumber of obs =356.000 maximum lag: 44F( 1, 354) =2.990 Prob > F =0.084 Newey-West RV(t+1) Coef.Std. Err. tP>t [95% Conf.Interval] EmployCh(t+1) -.0786806.0454715 -1.730.084 -.16810890.011 _cons 38.425746.133826 6.260.000 26.3624150.489 newey RV(t+1) EmployIncr EmployDec, lag(44) Regression with Newey-West standard errorsNumber of obs =356.000 maximum lag: 44F( 2, 353) =2.010 Prob > F =0.135 Newey-West RV(t+1) Coef. Std. Err. tP>t [95% Conf.Interval] EmpIncr(t+1) -12.3024 6.254994 -1.970.050 -24.60415-0.001 EmpDecr(t+1) 2.527 4.108933 0.620.539 -5.55397210.608 _cons 38.6737 6.2204 6.220.000 26.4399150.908

18 newey RV(t+1) EmpChange(t), lag(44) Regression with Newey-Weststandard errorsNumber of obs =355.000 maximum lag: 44F( 1, 353) =2.770 Prob > F =0.097 Newey-West RV(t+1) Coef.Std. Err. tP>t [95% Conf.Interval] EmpChange(t) -.0833593.0501089 -1.660.097 -.18190890.015 _cons 38.459996.147739 6.260.000 26.3691950.551 Regressing Employment Error at t on RV(t+1) newey RV(t+1) EmpChange(t+1), lag(44) Regression with Newey-Weststandard errorsNumber of obs =356.000 maximum lag: 44F( 1, 354) =2.990 Prob > F =0.084 Newey-West RV(t+1) Coef.Std. Err. tP>t [95% Conf.Interval] EmpChange(t+1) -.0786806.0454715 -1.730.084 -.16810890.011 _cons 38.425746.133826 6.260.000 26.3624150.489 Regressing Employment Error at t on RV(t)

19 HAR-RV with Indicator for Prediction Error in Unemployment Regression withNewey-Weststandard errorsNumber of obs =356.000 maximum lag: 44F( 5, 350) =215.360 Prob > F =0.000 Newey-West RV(t+1)Coef.Std. Err. tP>t [95% Conf.Interval] RV(t)0.392.0708666 5.530.000.25240110.531 RV(t-5,t)0.352.0631066 5.570.000.22753750.476 RV(t-22,t)0.109.0704045 1.540.124 -.0298220.247 EmpInc(t+1)0.9392.075873 0.450.651 -3.1432685.022 EmpDecr(t+1)3.4783.13709 1.110.268 -2.69189.648 _cons4.6101.483457 3.110.002 1.6924077.528

20 HAR-RV with Prediction Error of Unemployment newey RV(t+1) RV(t)RV(t-5,t) RV(t-22,t) RV(t+1)2, lag(44) Regression withNewey-West standard errorsNumber of obs =356.000 maximum lag: 44F( 4, 351) =250.150 Prob > F =0.000 Newey-West RV(t+1)Coef. Std. Err. tP>t [95% Conf.Interval] RV(t).3912955.0708362 5.520.000.25197870.531 RV(t-5,t).3490004.0631436 5.530.000.22481310.473 RV(t-22,t).1118007.0711585 1.570.117 -.028150.252 EmpChange(t+1)-.0022569.0340129 -0.070.947 -.06915160.065 _cons4.71545 1.47223 3.200.001 1.8199497.611

21 HAR-RV for Multiple Periods Regression withNewey-Weststandard errorsNumber of obs =2900 maximum lag: 44F( 12, 2887) =664.24 Prob > F =0 Newey-West RV(t+1)Coef.Std. Err. tP>t [95% Conf.Interval] RV(t)0.4451.06044 7.360.000.3265660.5635857 RV(t-5,t)0.2891.0584834 4.940.000.17443940.4037862 RV(t-22,t)0.15508.0385057 4.030.000.07958170.2305846 FedChangeValue(t+1)-1.86192.462416 -0.760.450 -6.6901922.96635 FC*RV(t)0.02479.0950022 0.260.794 -.16149390.211064 FC*RV(t-5,t)0.08579.1382652 0.620.535 -.18531610.3569008 FC*RV(t-22,t)-0.07591.0793942 -0.960.339 -.23158510.0797648 FC*FedChange(t+1)-28.590815.05288 -1.900.058 -58.106280.9246645 PL*RV(t)-0.09931.118297 -0.840.401 -.33126560.1326445 PL*RV(t-5,t)-0.03250.1514165 -0.210.830 -.32939340.2643973 PL*RV(t-22,t)0.10440.1385846 0.750.451 -.16733750.3761319 PL*FedChange(t+1)7.203723.44532 0.310.759 -38.7675653.17496 _cons1.3383.3183748 4.200.000.71404221.962572

22 Final Research Continue to Examine Other Macroeconomic Indicators Effect on HAR-RV Model

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