Ross, S., 1989, Information and volatility: the no-arbitrage martingale approach to timing and resolution irrelevancy, Journal of Finance 44, 1-18.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....models emphasize intraday relationships. Rational expectations models typically treatvolume as a byproduct of the market mechanism. The intraday asymmetric models show that volume will concentrate at certain times within the day, creating the familiar U shaped volume and volatility curves. See Grossman [1989] for a collection of papers examining rational expectations models. Admati and Pfleiderer [1988] and Kyle [1985] are examples of intraday asymmetric models. See Admati [1991 ] for a review of both types of models. 1 A BIVARIATE GARCH APPROACHTO THE FUTURES VOLUME VOLATILITY ISSUE ABSTRACT This ....

....related to the role of information in price formation, with volatility and volume providing measures of the significance of the information reflected in the market. Bookstaber and Pomerantz [1989] Grossman and Stiglitz [1980] Huffman [1992] Jang and Ro [1989] Richardson and Smith [1994] Ross [1989], and Wang [1994] all develop models which show the importance of volume and or the volatility volume relationship in reflecting changes i n the informa tion beliefs of traders in the marketplace. 1 In addition, previous empirical studies on stock market volati lity include attempts to separate ....

Ross, S., 1989, Information and volatility: the no-arbitrage martingale approach to timing and resolution irrelevancy, Journal of Finance 44, 1-18.

....theory, and the independentmarkets theory. The resultsshow an information transfer in volatility between the futures instruments such that the dominant market theory is valid for a large number of cases. I. Introduction Volatility is an important measure of the flow of information. Models by Ross (1989) and Bookstaberand Pomerantz(1989) show that the information vola tility relationship is more i mportant than the information price change relationship. In addition, option prices, portfolio insurance strategies, and other financial models are directly related to volatility, while the direction of ....

....for this study is based on the belief that information is transmitted quickly. 7 See the following for discussions of information theory and informed trader models: Admati (1991) Admati and Pfleiderer (1988 89) Bookstaber and Pomerantz (1989) French and Roll (1986) Kyle (1985) and Ross (1989). 8 An example of a dominant market is shown by Blume, MacKinlay and Terker (1989) who found that the S P 500 stocks fell 7 more than non S P 500 stocks on October 19, 1987. They attributed the difference to order imbalances. Another factor affecting volatility relationships is the ....

Ross, S., "Information and Volatility: The No-Arbitrage Martingale Approach to Timing and Resolution Irrelevancy." Journal of Finance, Vol. 44 No.1 (March 1989), pp. 1-18.

....to book value, and the technological parameter is zero. Then, adopting the Lindenberg and Ross [15] algorithm, inflation data from the Producer Price Index Capital Goods Series from the Bureau of Labor Statistics are used to compute the replacement cost of assets. Event Study Methodology Ross [21] shows that increases in the rate of idiosyncratic information flow may increase the residual variance of stock returns, rather than their mean value, which is a measure of the wealth effect. Without allowing for possible increases in residual variance, i.e. the variance effect, one may ....

Ross, Stephen, "Information and Volatility: The No-Arbitrage Martingale Approach to Timing and Resolution Irrelevancy," Journal of Finance 44, 1989, pp. 1-18.

.... often associated with the amount of information arriving into the market, and this model proposes that stochastic volatility is directly linked to the rate of information ow I(t) Empirical studies have found a strong link between the rate of information arrivals and observed short run volatility [24, 34, 50]. Ross [50] notes that in an arbitrage free economy, the volatility of prices is directly related to the rate of ow of information to the market. Moreover, the I dependence of the drift in our model implies that an increase in volatility will result in an increase in the expected return. This is ....

.... the amount of information arriving into the market, and this model proposes that stochastic volatility is directly linked to the rate of information ow I(t) Empirical studies have found a strong link between the rate of information arrivals and observed short run volatility [24, 34, 50] Ross [50] notes that in an arbitrage free economy, the volatility of prices is directly related to the rate of ow of information to the market. Moreover, the I dependence of the drift in our model implies that an increase in volatility will result in an increase in the expected return. This is compatible ....

Stephan A. Ross, Information and volatility: The no-arbitrage martingale approach to timing and resolution irrelevancy, The Journal of Finance 44 (1989), no. 1, 1-17.

....increase see the examples in Obstfeld 1994 , Basak 1996 , and Basak and Cuoco 1998 . The predictions for the effect of speculative activity on volatility are less clear cut. Moreover, there is no clear relation between volatility and market efficiency. In the models of Newbery 1987 and Ross 1989 , for example, speculative activity increases volatility but is, at the same time, welfare improving. Correlations may increase because the discount rate becomes global or cash f lows become more correlated but the magnitude of these effects is hard to predict. A major problem in bringing theory ....

....the cross sectional standard deviation. We use cross sectional standard deviation also as our main microstructure variable since other data, such as turnover and the number of stocks traded, are only available for a portion of the sample. This variable potentially wears two hats. In the model of Ross 1989 , it measures the amount of information being revealed about the stocks traded in a particular country. However, as indicated above, it may also potentially reveal information about the diversity of the industrial sector. To account for these two interpretations in the volatility, correlation, ....

Ross, Stephen A., 1989, Information and volatility: The no-arbitrage martingale approach to timing and resolution irrelevancy, Journal of Finance 44, 1--17.

....with mean h = g(1 f h ) and variance s h 2 = s u 2 (1 f h 2 ) The autocorrelation of return innovations is zero at all lags, but there can be a substantial degree of higher order dependence apparent in the logarithm of squared returns, ln r 2 t = h t ln z 2 t . 6) 7 Ross (1989) develops a similar relation between the information flow and volatility. 8 This specification is similar to those examined by Taylor (1994) and Harvey, Ruiz, and Shephard (1994) 10 Because z t is standard normal, the mean and variance of ln z 2 t are 1.27 and 4.93 [Abramowitz and Stegun ....

Ross, Stephen A., 1989, Information and volatility: The no-arbitrage martingale approach to timing and resolution irrelevancy, Journal of Finance 44, 1--17.

....as a result of default (e.g. Altman (1989) and with sudden drops in commercial real estate loan values once borrower default and foreclosure has occurred (e.g. Ciochetti and Riddiough (1999) Also see Du#e and Lando (1998) for further discussion of this issue. 13 In a related application, Ross (1989) analyzes e#ects on asset and option prices when changes occur in the (continuous) arrival rate of information. His focus, however, is on the rate of uncertainty resolution (whether intentionally e#ected or not) in the absence of being able to act on the new information. In contrast, a change in ....

Ross, S. A. (1989). Information and volatility: The no-arbitrage martingale approach to timing and resolution irrelevancy. Journal of Finance 44 (1), 1--17.

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