Publication Type

PhD Dissertation

Version

publishedVersion

Publication Date

6-2022

Abstract

The dissertation consists of three essays on asset pricing by constructing new data set and developing new methodologies. In the first chapter, we conduct empirical studies on the volatility-managed portfolios in the Chinese stock market. Using data from the Chinese stock market, we have found that the main empirical findings in Moreira and Muir (2017) break down. Based on the empirical findings, we exploit a comprehensive set of $99$ equity strategies in the Chinese stock market to analyze the value of managed portfolios. Based on these $99$ equity trading strategies, we find that there exists no systematic gain from scaling the original portfolios using volatility. Our empirical results suggest that one should be careful to use volatility-managed portfolios in practice as the expected performance gains are rather limited.

In the second chapter, we review a Bayesian interpretable machine-learning method proposed by Kozak, Nagel, and Santosh (2020). We show how the method can link two strands of literature, namely the literature on empirical asset pricing and the literature on statistical learning. Based on a recently developed data-cleaning technique, we obtain 123 financial and accounting cross-sectional equity characteristics in the Chinese stock market. When applying the method of Kozak, Nagel, and Santosh (2020) to the Chinese stock market, we find that it is futile to summarize the stochastic discount factor (SDF) in the Chinese stock market as the exposure of several dominant cross-sectional equity characteristics in-sample. A cross-validated out-of-sample analysis further supports this finding.

In the third chapter, we propose several alternative parametric models for spot volatility in high frequency, depending on whether or not jumps, seasonality, and announcement effects are included. Together with these alternative parametric models, nonlinear non-Gaussian state-space models are introduced based on the fixed-k theory of Bollerslev, Li, and Liao (2021). According to Bollerslev, Li, and Liao (2021), the log fixed-k estimator of spot volatility equals the true log spot volatility plus a non-Gaussian random variable. Bayesian methods are introduced to estimate and compare these alternative models and to extract volatility from the estimated models. Simulation studies suggest that the Bayesian methods can in general work well. Empirical studies using high-frequency market indexes and individual stock prices reveal several important results. As an application of extracting volatility, we quantify the strategic value of information.

Degree Awarded

PhD in Economics

Discipline

Econometrics | Finance

Supervisor(s)

YU, Jun

Publisher

Singapore Management University

City or Country

Singapore

Copyright Owner and License

Author

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