Circuit breakers and stock market volatility

Article Abstract:

The effects of 'circuit breaker' mechanisms put in place at the New York Stock Exchange to control excess volatility related to program trading are evaluated. The volatility of cash market for stocks is examined using an autoregressive conditional heteroskedastic (ARCH) model, using daily data for the period July 1962-May 1991. Circuit breaker rules are summarized. Analysis does not support the idea that the rules reduce the conditional variance of stock returns or dampen price volatility on 50-point days.

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A further investigation of the lead-lag relationship between the spot market and stock index futures: early evidence from Korea

Article Abstract:

The Dynamic Simultaneous Equation Models and the Vector Autoregression Model were used to examine the lead and lag relationship between Korea's futures and spot markets with particular focus on return and volatility. The results show that the futures market is ahead of the cash market with regard to the return series by as much as half an hour. As for the volatility interaction between the two markets, the findings indicate a bidirectional causality.

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Valuing stock options when prices are subject to a lower boundary

Article Abstract:

The effects of lower boundaries of stock prices on stock option pricing are examined. Ignoring these lower boundaries can lead to significant undervaluation of option prices.

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