Trading Strategies of Heterogeneous Beliefs Implied by Characteristics of Price Dynamics in the Short Run under Bull and Bear Markets
Date Issued
2012
Date
2012
Author(s)
Cheng, Han-Yin
Abstract
There are some special market stages during market cycle, while research in the past focus on some extreme situation in the market without a systematic description for the development of the market which may result in omitting important information contained in the stages they have ignored. The well-known characteristic of equity markets, asymmetric volatility, which means opposite directions of price movement cause distinct level of volatility further emphasizes the vital role price dynamics plays in forming characteristics of volatility. In our research, we assume that different kinds of price dynamics, market trend, in the short run under bull and bear market phases have distinct characteristics of volatility implying trading strategies of heterogeneous beliefs. In order to explore the features of each market stage, we use dating algorithm to divide the U.S. market data series into sub-periods according to price trend and analyze the volatility characteristics of each sub-period data series by GJR-GARCH model piecewisely. We come up with a novel systematic way to describe the market mechanism which contains each kind of investor’s trading strategies and their influences on price dynamics to form market stages that with different volatility characteristics under market cycle.
Subjects
Market cycle
volatility
heterogeneous belief
asymmetry
Type
thesis
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