Journal of Banking & Finance - Accounting and Finance Assignment Help

Assignment Task

Abstract

We determine the events that cause large shocks in volatility of the DJIA index over the period 1928–2013, using a new semi-parametric test based on conditional heteroscedasticity models. We find that these large shocks can be associated with particular events (financial crashes, elections, wars, monetary policies, etc.). We show that some shocks are not identified as extraordinary movements by the investors due to their occurring during high volatility episodes, especially the 1929–1934, 1937–1938 and 2007–2011 periods.

indeed, the Dow Jones Industrial Average (DJIA) index sustained a 22.6% loss on Black Monday. However, large daily swings that are neither unique, unusual nor as dramatic have a substantial impact on stock market returns. Events such as wars, terrorism, and bankruptcy are known as ‘‘black swans’’.1 According to Taleb (2007), a black swan is an event with three attributes:

(i) It is an outlier, lying outside the realm of regular expectations because nothing in the past can convincingly point to its occurrence;

(ii) it carries an extreme impact; and

(iii) despite being an outlier, plausible explanations for its occurrence can be found after the fact, thus implying that it is explainable and predictable

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