Test of Volatile Behaviors with the Asymmetric Stochastic Volatility Model: An Implementation on Nasdaq-100

Round 1

Reviewer 1 Report

Summary: This paper investigates the presence of asymmetric stochastic volatility 6

and leverage effects within the Nasdaq-100 index and focuses on the nine leading stocks within the index. The results show the presence of volatility clustering, leverage effects and asymmetric relationships for the Nasdaq-100 index and some of the individual stock samples.

The topic of this paper is interesting. However, the writing of this paper should be significantly improved. We can see a lot of typos and unclear equations in the manuscript. Moreover, the contributions of this paper are unclear. The characteristic of stock market volatility such as volatility clustering, asymmetric relationship and leverage effect have been widely investigated in the literature. The authors should compare this study with the existing literature and show their marginal contributions. We can see the ASV model and the methodology are not new and have been widely applied in the literature.

Some detailed comments are shown as follows:

1.     The introduction and literature review should be re-written to improve the readability of this paper. The literature review is poorly written with all the related researches are simply piled up.

2.     There are some display problems in Eq.(8) and (9).

3.     The main results are shown in Table 3 and Table 4. The leverage effects are addressed by the coefficients of the ASV model. But it lacks in-depth analysis for these effects.

4.     The format of References should be uniform.

 Moderate editing of English language is required.

Author Response

Summary: This paper investigates the presence of asymmetric stochastic volatility

and leverage effects within the Nasdaq-100 index and focuses on the nine leading stocks within the index. The results show the presence of volatility clustering, leverage effects and asymmetric relationships for the Nasdaq-100 index and some of the individual stock samples.

The topic of this paper is interesting. However, the writing of this paper should be significantly improved. We can see a lot of typos and unclear equations in the manuscript. Moreover, the contributions of this paper are unclear. The characteristic of stock market volatility such as volatility clustering, asymmetric relationship and leverage effect have been widely investigated in the literature. The authors should compare this study with the existing literature and show their marginal contributions. We can see the ASV model and the methodology are not new and have been widely applied in the literature.

Some detailed comments are shown as follows:

1. The introduction and literature review should be re-written to improve the readability of this paper. The literature review is poorly written with all the related researches are simply piled up.

New studies on the literature have also been added to the subject, and literature studies that overlap with the findings are included in the conclusion section. In addition, the entire article in the literature section has been rewritten taking into account the deficiencies.

2. There are some display problems in Eq.(8) and (9).

In order to eliminate these technical errors, it was decided to take screenshots of the equations and place them in the article.

3. The main results are shown in Table 3 and Table 4. The leverage effects are addressed by the coefficients of the ASV model. But it lacks in-depth analysis for these effects.

Additions have been made to the description of the tables. MC margins of error and measurement of asymmetric effect are expressed.

4. The format of References should be uniform.

References have been improved according to the writing rules of the article.

Reviewer 2 Report

There are several concerns and suggestions to improve the article for better understanding the economic and econometric perspectives of this manuscript.

1. (1)  In what criterion to pick the nine stocks from the Nasdaq-100? any quantitative or qualitative measure to choose them?

2. (2)  For the econometric methods, which asymmetric stochastic volatility models do you use in Table 3 and Table 4 for your main findings? Any comparison among those ASV models (Harvey and Shephard (1996), Jacquier et al., (2004), Yu (2005), and Asai and McAleer (2005))?

3. (3)  Any connection between Table 3 and Table 4? What is the point to pick up some stocks from Nasdaq-100 to analyze their asymmetric stochastic volatilities com- pletely independent of the asymmetric stochastic volatility of the Nasdaq-100?

It would be better to explain the economic significance of your econometric finding, otherwise just a simple application of well-known econometric method to a time series.

Comments for author File: Comments.pdf

Author Response

There are several concerns and suggestions to improve the article for better understanding the economic and econometric perspectives of this manuscript.

1. In what criterion to pick the nine stocks from the Nasdaq-100? any quantitative or qualitative measure to choose them?

As stated in the selection of these stocks, it is important that their market share has a very high weight in the Nasdaq 100 index. On the other hand, it is thought that since they are generally high technology stocks, they have an advantage in terms of investor diversity and therefore, based on these movements, they may have the power to represent/influence the Nasdaq-100 index.

2. For the econometric methods, which asymmetric stochastic volatility models do you use in Table 3 and Table 4 for your main findings? Any comparison among those ASV models (Harvey and Shephard (1996), Jacquier et al., (2004), Yu (2005), and Asai and McAleer (2005))?

In this study, only the Asai and McAleer ASV model was used and the results were discussed through this model structure.

3. Any connection between Table 3 and Table 4? What is the point to pick up some stocks from Nasdaq-100 to analyze their asymmetric stochastic volatilities completely independent of the asymmetric stochastic volatility of the Nasdaq-100?

In this study, the total market shares of the 9 stocks were considered and the possibility of having an impact on the Nasdaq 100 index was included due to the high share. For example, considering that the weight of the stocks under consideration is 45%, it is thought that an asymmetric effect in these stocks will also create an asymmetric effect on Nasdaq 100. This constitutes the main motivation of the study.

Reviewer 3 Report

1-      Please explain the reason for selection of data range and expand the data till this year.

2-      Please interpret also the mean and standard deviation of data.

3-      A visual inspection of data is not enough to conclude that the series are stationary, please also provide the results of unit root tests.

4-      Please explain the abbreviations (For example what ASV stands for).

Author Response

1. Please explain the reason for selection of data range and expand the data till this year.

The time period chosen for the study tries to focus on new financial instruments and their investment behaviour implications on traditional investment instruments by investors, while also containing the effects of a volatile period like COVID-19. On the other hand, we would like to point out that although it is not possible to extend the study to this year due to the new model calculations and therefore the fundamental change of the study (such as changing table values and interpretations), it will be taken into consideration in future studies.

2. Please interpret also the mean and standard deviation of data.

In the study, the mean and standard deviation values were explained and revised in terms of calculating the volatility power.

3. A visual inspection of data is not enough to conclude that the series are stationary, please also provide the results of unit root tests.

In the studies carried out, it is observed that there is no need for unit root tests, especially in approaches aimed at measuring volatility, as it can be seen whether the series (especially financial time series) have a volatile structure and normal distribution through Jargue Bera values, Kurtosis and Skewness values. In the study, financial time series were included in the study on return series and the difference with the previous period was taken with logarithmic values. Therefore, stationarity of the series is ensured.

4. Please explain the abbreviations (For example what ASV stands for).

Completed