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Story - sevy - 08/08/2008 - 00:01 - 0 comments - 0 attachments
Much recent attention has focused on modeling high frequency stock price behavior. On the theoretical side, the blossoming area of market microstructure is providing valuable insights into the trade by trade stock price process. On the empirical side, a wealth of research has focused on capturing salient features of calendar period stock data, including conditional heteroskedasticity in calendar period price changes, or stochastic volatility. We provide a theory based link among asymmetric information, the behavior of market participants, and stochastic volatility through a market microstructure model of securities markets.
Our work follows on from Kelly and Steigerwald (2000), in which the stochastic properties of calendar period trades and squared price changes are derived from a market microstructure model. In the current paper, we make two principle contributions. First, we consider a model in which trade occurs in an options market as well as the stock market. Working from the microstructure model of Easley, OGHara, and Srinivas (1998) we derive the dynamic pattern of trade across markets as well as the stochastic properties of trades and squared price changes for each market. Second, we obtain analytic expressions for the serial correlation in calendar period squared price changes and so can directly relate stochastic volatility to the parameters of the underlying model.
While the field of empirical capital structure studies is very actively researched, the large majority of studies have been conducted on samples of large firms. The relative shortage of research into private small firm capital structure is troubling because small firms provide about half of private sector employment and produce about half of private sector output in the United States (Vinturella and Erickson, 2004). Even their aggregate importance as users of financing has recently surpassed that of better-known large-firm markets (Denis, 2004).
Small firms face a very different financial market compared to large public firms. Due to the dominance of private equity financing and bank lending in the field, small business owners face less competitive, perhaps less informationally efficient, and therefore more restrictive financial markets (Berger and Udell, 1998).
In recent years, East Asian states have been intensifying efforts to integrate their economies
with each other mainly through bilateral and regional free trade agreements (FTAs). Their efforts, nonetheless, are not confined to the East Asian region. The move towards institutional integration with ‘extra-regional’ states such as Australia, Chile, India, Mexico, New Zealand and the United States has also gained momentum. Intra-and inter-regional economic cooperation schemes including FTAs are now forming a complicated multilayered structure in East Asia.
