Work detail

Statistical properties of the liquidity and its influence on the volatility prediction

Author: Mgr. David Brandejs
Year: 2016 - summer
Leaders: prof. PhDr. Ladislav Krištoufek Ph.D.
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 74
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/148011/
Abstract: This master thesis concentrates on the influence of liquidity measures on the
prediction of volatility and given the magic triangle phenomena subsequently on
the expected return. Liquidity measures Amihud Illiquidity, Amivest Liquidity
and Roll adjusted for high frequency data have been utilized. Dataset used for
the modeling was consisting of 98 shares that were traded on S&P 100. The
time range was from 1st January 2013 to 31st December 2014. We have found
out that the liquidity truly enters into the return-volatility relationship and
influences these variables - the magic triangle interacts. However, contrary to
our hypothesis, the model shows up that lower liquidity signifies lower realized
risk. This inference has been suggested by all three models (3SLS, 2SLS and
OLS). Furthermore, we have used the realized variance and bi-power variation
to separate the jump. Our second hypothesis that lower liquidity signifies
higher frequency of jumps was confirmed only for one of two liquidity proxies
(Roll) included in the resulting logit FE model.
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