How Interest Rates Affect Equity Markets?

Interest rates are a determinant factor in the pricing mechanism of public markets.  When interest rates go up, the cost of borrowing increases, and this affects economic activity and company profits. Equity markets are sensitive to changes in interest rates because they affect corporate profitability and the cost of capital. …

Forecasting Earnings and Returns

Data science and machine learning have made great progress in the past few years. They are being applied successfully in many areas such as computer vision, natural language processing, and predictive analytics. In the financial market, however, there are still many uncertainties and risks that the new technology cannot predict. …

Why Do Investors Lose Money?

Behavioural finance is the study of how financial behaviour affects economic decisions and market outcomes, and how those decisions and outcomes are affected by psychological, social, and cultural factors. It is a relatively new field that combines elements of economics, psychology, and sociology. Behavioural finance research has shown that people …

Robustness of the GARCH Model

The generalized autoregressive conditional heteroskedasticity (GARCH) model is an econometric model for analyzing stock market volatility. The GARCH model is used to estimate the variance of a return, using past returns as an input into a model. It is a popular tool for measuring risk in financial markets, as it …

Options Trading Using Econometric Models

In the financial world, time series analysis is frequently used to predict stock prices, interest rates, and currency exchange rates. Econometric models are a type of time series analysis that uses historical data to forecast future asset prices and volatilities. Reference applied the autoregressive integrated moving average (ARIMA) model …

Profitability of a Dispersion Trading Strategy

Dispersion trading is an investment strategy that is used to capitalize on the discrepancies in volatilities between an index and its constituents. The strategy involves buying or selling the index options and simultaneously buying or selling the constituent stocks’ options. This results in a long/short volatility portfolio. Reference provided …

Technical Indicators in Momentum Trading

Technical indicators are mathematical calculations based on historic price, volume, or open interest information that aim to forecast future market behavior. In general, technical analysis focuses on trends and patterns in the price of an underlying instrument such as a stock or commodity. We recently discussed a paper that studied …

Technical Trading During The Pandemic

Many investors use fundamental or technical analysis when making investment decisions, with many only using technical analysis when picking their trades. Many traders use technical indicators to spot potential trading opportunities. Technical indicators are mathematical calculations based on the price, volume, or open interest of an underlying asset. They fall …