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Reading what I have, I can only offer a guess. 1: Let's say you're looking at 9 sectors compared to \$SPX on a daily chart. Foreach sector, compute relative closing price: 100 * Sector/\$SPX 2: It looks like the RS-Ratio is averaged over 14 periods. I say 14 because stockcharts.com shows RS-Ratio peaking after a lag (2-3wks), despite price peaking 2-3 ...


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I am struggling a little to understand your question, but I suspect I know where you're running into trouble, because it is a question we frequently use on students to test their understanding of how R estimates ARIMA models. When you estimate an ARIMA model in R, the output is provided in what we often call Normal form. For the specific case of an AR(1) ...


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You can see fairly quickly that an exact answer to this question is not going to be feasible because your functional transformation is to take the square root of $\sigma_t^2$, and the square root function has a countably infinite number of derivatives. This implies that a Taylor expansion is going to leave us with a countably infinite number of terms, most ...


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"conditional volatilities from GARCH models are not stochastic since at time $t$ the volatility is completely pre-determined (deterministic) given previous values"-https://en.wikipedia.org/wiki/Stochastic_volatility $\sigma_t$ is still a random variable in the sense that it has an unconditional distribution. However, this unconditional distribution is not ...


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One easy way to cross-check that is to compute option implied correlations. Those correlations are model free and only depend on the current day option prices and they are indeed stable. For a nice article on computing option implied correlations check Vilkov's website he has several articles discussing option implied correlations. ...


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I think the trader was referring to the leverage effect: stock price changes (not stock price) are negatively correlated with volatility. Stock price and stock price change (i.e. returns) are not the same thing. If we consider variance and option pricing, then there are pricing models (example: Heston model) that represent the stock price evolution and the ...


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The statement is not correct as it stands for several reasons. First and foremost, it is only remotely meaningful if asset X is an option (or a similar type of derivative contract). Second, I think he meant 1, not -1. Third, correlation is probably not the best word to use. The grounds for your trader friends statement is the work on option pricing theory ...


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The R code is correct. You could also use the I() operator. You can look here on page 53. The code then would be lm(stock~market+I(market^2)+I(market^3), data=example) EDIT: going more into detail: Doing the above you define regressors $market^2$ and $market^3$. The coefficients will be calculated the usual way (covariance of response with the regressors ...


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The rating downgrade/upgrade effect is definitely more extreme during financial crisis, because of several effects (among all, flight-to quality, flight-to-liquidity and news effects itself), as shown by: Arezki, Rabah, Bertrand Candelon, and Amadou Nicolas Racine Sy. "Sovereign rating news and financial markets spillovers: Evidence from the European ...



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