THE ECONOMIC GAINS OF TRADING STOCKS AROUND HOLIDAYS

I assess the economic gains of strategies that account for the effect of holiday calendar effects on the daily returns and volatility of the 30 stocks in the Dow Jones Industrial Average index. The dynamic strategies use forecasts from stochastic volatility models that distinguish between regular tr...

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Bibliographic Details
Published inThe Journal of financial research Vol. 33; no. 1; pp. 1 - 26
Main Author Tsiakas, Ilias
Format Journal Article
LanguageEnglish
Published Malden, USA Blackwell Publishing Inc 01.03.2010
Southern Finance Association
Wiley Subscription Services, Inc
SeriesJournal of Financial Research
Subjects
G11
G14
Holidays & special occasions
Risk aversion
Securities markets
Stocks
Studies
Transaction costs
Volatility
United States > US
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Summary:I assess the economic gains of strategies that account for the effect of holiday calendar effects on the daily returns and volatility of the 30 stocks in the Dow Jones Industrial Average index. The dynamic strategies use forecasts from stochastic volatility models that distinguish between regular trading days and different types of holidays. More important, I assess the economic value of conditioning on holiday effects and find that a risk‐averse investor will pay a high performance fee to switch from a dynamic portfolio strategy that does not account for the effect of holidays on daily conditional expected returns and volatility to a strategy that does. This result is robust to reasonable transaction costs.
Bibliography:ark:/67375/WNG-NB4SSQNL-6
istex:40AC1ED00BFA55A0296BBC41221621CFBF89DF21
ArticleID:JFIR1260
I thank Gerald Gay (the editor), an anonymous referee, Pasquale Della Corte, Lucio Sarno, and Alex Stremme for helpful comments.
ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0270-2592
1475-6803
DOI:10.1111/j.1475-6803.2009.01260.x