Volume and Volatility
Lead PI:Professor Colm Kearney
Abstract:The motivation behind this work is to see whether, before, and after announcements of takeovers, there are possible profitable arbitrage opportunities based on the interaction between trading volumes and equity returns. This involves estimating bivariate and multivariate GARCH models, and trying to estimate them in various ways with alternative assumptions about the structure of the data distributions. Since our analysis includes a relatively large number of time series, we are particularly interested in simpler approaches to estimating large covariance matrices, and we have settled on the MacGyver method introduced by Engle (2007) which is designed to solve these high dimensional problems and simplifies the estimation process for large systems.