Alexander Subbotin - Academia.edu (original) (raw)

Papers by Alexander Subbotin

copies of this document for non-commercial purposes by any means, provided that this copyright no... more copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.

We decompose volatility of a stock market index both in time and scale using wavelet filters and ... more We decompose volatility of a stock market index both in time and scale using wavelet filters and design a probabilistic indicator for volatilities, analogous to the Richter scale in geophysics. The peakover-threshold method is used to fit the generalized Pareto probability distribution for the extreme values in the realized variances of wavelet coefficients. The indicator is computed for the daily Dow Jones Industrial Average index data from 1896 to 2007 and for the intraday CAC40 data from 1995 to 2006. The results are used for comparison and structural multi-resolution analysis of extreme events on the stock market and for the detection of financial crises.

This paper studies the excess returns on stocks, associated to various company fundamentals on a ... more This paper studies the excess returns on stocks, associated to various company fundamentals on a panel of US stocks from 1979 to 2008. The returns premia are measured using a random coefficient panel data model on the individual stock level. We show that the HML and SMB factors in the Fama and French model probably have no particular economic meaning as sources of systematic risk other than being proxies for the impact of the book-to-price and size characteristics. While the book-to-price ratio, market capitalization, past year sales growth and the share of reinvested profits generate significant premia, earnings history and forecasts are of little predictive power. We statistically confirm the time-varying nature of the style premia but find no strong evidence for the value and growth momentum in a multivariate setting when the systematic risk is controlled for. Some of the premia are positively correlated with the market return and between each other, while others seem to be unrel...

Market prices of risky assets are driven by the actions of economic agents that have different in... more Market prices of risky assets are driven by the actions of economic agents that have different investment horizons: they adjust their portfolios at various frequencies and observe returns at different scales. In this thesis we examine the problem of multiple investment scales from three different angles. In the first place, we study the theoretical implications of the heterogeneity of investors' decision horizons for price dynamics. This analysis is carried in the frameworks of complete and bounded rationality. Second, different time series models of price volatility are examined in view of their capacity to represent the properties of stock returns simultaneously at various time scales. Finally, a method of measuring volatility at multiple scales with wavelet filters is developed, with application to the detection of financial crises.

The Russian establishment- politicians, agricultural officials, corporate farm managers, the medi... more The Russian establishment- politicians, agricultural officials, corporate farm managers, the media- firmly believe that inadequate access to credit is one of the major factors constraining the growth of the agricultural sector. In technical terms, they in effect claim that Russian agriculture faces credit rationing. In this article, we apply discrete regression analysis to study the determinants of access to credit for corporate farms, without addressing the issue of whether or not the actual borrowing is sufficient for the farms' needs. Our analysis shows that factors reflecting economic efficiency are the main determinants of access to credit. On the other hand, asset endowments, such as land and capital stock, have a very weak effect on the ability to borrow. Our findings caution against generalizing the conventional financial patterns of market economies to transition countries.

Risk Management, 2009

We overview different methods of modeling volatility of stock prices and exchange rates, focusing... more We overview different methods of modeling volatility of stock prices and exchange rates, focusing on their ability to reproduce the empirical properties in the corresponding time series. The properties of price fluctuations vary across the time scales of observation. The adequacy of different models for describing price dynamics at several time horizons simultaneously is the central topic of this study. We propose a detailed survey of recent volatility models, accounting for multiple horizons. These models are based on different and sometimes competing theoretical concepts. They belong either to GARCH or stochastic volatility model families and often borrow methodological tools from statistical physics. We compare their properties and comment on their pratical usefulness and perspectives.

It is a common wisdom that individual stocks' returns are difficult to predict, though in many si... more It is a common wisdom that individual stocks' returns are difficult to predict, though in many situations it is important to have such estimates at our disposal. In particular, they are needed to determine the cost of capital. Market equilibrium models posit that expected returns are proportional to the sensitivities to systematic risk factors. Fama and French (1993) three-factor model explains the stock returns premium as a sum of three components due to different risk factors: the traditional CAPM market beta, and the betas to the returns on two portfolios, "Small Minus Big" (the differential in the stock returns for small and big companies) and "High Minus Low" (the differential in the stock returns for the companies with high and low book-to-price ratio). The authors argue that this model is sufficient to capture the impact on returns of companies' accounting fundamentals, such as earnings-toprice, cash flow-to-price, past sales growth, long term and short-term past earnings. Using a panel of stock returns and accounting data from 1979 to 2008 for the companies listed on NYSE, we show that this is not the case, at least at individual stocks' level. According to our findings, fundamental characteristics of companies' performance are of higher importance to predict future expected returns than sensitivities to the Fama and French risk factors. We explain this finding within the rational pricing paradigm: contemporaneous accounting fundamentals may be better proxies for the future sensitivity to risk factors, than the historical covariance estimates.

Http Www Theses Fr, 2010

Les prix de marche des actifs risques sont dictes par les actions des agents economiques qui ont ... more Les prix de marche des actifs risques sont dictes par les actions des agents economiques qui ont des horizons d'investissement differents: ils ajustent leurs portefeuilles a des frequences differentes et observent les rendements a differentes echelles. Dans cette these, nous examinons trois aspects distincts du probleme des horizons multiples d'investissement. En premier lieu, nous etudions les implications theoriques de l'heterogeneite des horizons de decision des investisseurs pour la dynamique des prix. Cette analyse est effectuee dans le cadre d'une rationalite complete et bornee. Deuxiemement, nous testons la capacite de differents modeles de series chronologiques de volatilite des prix a representer les proprietes des rendements boursiers simultanement a differentes echelles de temps. Enfin, nous proposons une methode de mesure de la volatilite a echelle multiple basee sur des filtres d'ondelettes, avec application a la detection des crises financieres.

... modélisation de la volatilité, GARCH, volatilité stochastique, cascade de volatilité, horizon... more ... modélisation de la volatilité, GARCH, volatilité stochastique, cascade de volatilité, horizonsmultiples dans la ... of them is quite sufficient to represent the whole structure of stock price variability. In particu-lar, most traditional models do not allow for representing returns dynamics ...

It is a common wisdom that individual stocks' returns are difficult to predict, though in many si... more It is a common wisdom that individual stocks' returns are difficult to predict, though in many situations it is important to have such estimates at our disposal. In particular, they are needed to determine the cost of capital. Market equilibrium models posit that expected returns are proportional to the sensitivities to systematic risk factors. Fama and French (1993) three-factor model explains the stock returns premium as a sum of three components due to different risk factors: the traditional CAPM market beta, and the betas to the returns on two portfolios, "Small Minus Big" (the differential in the stock returns for small and big companies) and "High Minus Low" (the differential in the stock returns for the companies with high and low book-to-price ratio). The authors argue that this model is sufficient to capture the impact on returns of companies' accounting fundamentals, such as earnings-toprice, cash flow-to-price, past sales growth, long term and short-term past earnings. Using a panel of stock returns and accounting data from 1979 to 2008 for the companies listed on NYSE, we show that this is not the case, at least at individual stocks' level. According to our findings, fundamental characteristics of companies' performance are of higher importance to predict future expected returns than sensitivities to the Fama and French risk factors. We explain this finding within the rational pricing paradigm: contemporaneous accounting fundamentals may be better proxies for the future sensitivity to risk factors, than the historical covariance estimates.

The Russian establishment— politicians, agricultural officials, corporate farm managers, the m... more The Russian establishment— politicians, agricultural officials, corporate farm managers, the media— firmly believe that inadequate access to credit is one of the major factors constraining the growth of the agricultural sector. In technical terms, they in effect claim that Russian agriculture faces credit rationing. In this article, we apply discrete regression analysis to study the determinants of access to credit for corporate farms, without addressing the issue of whether or not the actual borrowing is sufficient for the farms’ needs. Our analysis shows that factors reflecting economic efficiency are the main determinants of access to credit. On the other hand, asset endowments, such as land and capital stock, have a very weak effect on the ability to borrow. Our findings caution against generalizing the conventional financial patterns of market economies to transition countries.

International Journal of Theoretical and Applied Finance, 2015

We propose a Credit Value Adjustment (CVA) model capturing the Wrong Way Risk (WWR) that is not p... more We propose a Credit Value Adjustment (CVA) model capturing the Wrong Way Risk (WWR) that is not product-specific and is suitable for large-scale computations. The model is based on a doubly stochastic default process with the default intensities proxied by credit spreads. For different exposure structures, we show how credit–market correlation affects the CVA level, its sensitivities to credit and market factors, its volatility and the quality of hedging. The WWR is most significant for exposures highly sensitive to the market volatility in a situation when credit spreads are at moderate levels but both the market factors and credit spreads are volatile. In such conditions, ignoring credit–market correlations results in important CVA mispricing. While the benefits from hedging are always magnified in the situation of the WWR, the right way exposure case is more delicate: only a well-designed mix of credit and market hedges can bring volatility down. Our results raise doubts on the B...

Value and growth investment styles are a concept which has gained extreme popularity over the pas... more Value and growth investment styles are a concept which has gained extreme popularity over the past two decades, probably due to its practical efficiency and relative simplicity. We study the mechanics of different factors' impact on excess returns in a multivariate setting. We use a panel of stock returns and accounting data from 1979 to 2007 for the companies listed on NYSE without survivor bias for clustering, regression analysis and constructing style based portfolios. Our findings suggest that value and growth labels often hide important heterogeneity of the underlying sources of risks. Many variables, conventionally used for style definitions, cannot be used jointly, because they affect returns in opposite directions. A simple truth that more variables does not necessarily mean better model nicely summaries our results. We advocate a more flexible approach to analyzing accounting-based factors of outperformance treating them separately before or instead of aggregating.

Journal of Economic Dynamics and Control, 2013

This paper studies the effects of multiple investment horizons and investors' bounded rationality... more This paper studies the effects of multiple investment horizons and investors' bounded rationality on the price dynamics. We consider a pure exchange economy with one risky asset, populated with agents maximizing CRRA-type expected utility of wealth over discrete investment periods. An investor's demand for the risky asset may depend on the historical returns, so that our model encompasses a wide range of behaviorist patterns. The necessary conditions, under which the risky return can be a stationary iid process, are established. The compatibility of these conditions with different types of demand functions in the heterogeneous agents' framework are explored. We find that conditional volatility of returns cannot be constant in many generic situations, especially if agents with different investment horizons operate on the market. In the latter case the return process can display conditional heteroscedasticity, even if all investors are so-called "fundamentalists" and their demand for the risky asset is subject to exogenous iid shocks. We show that the heterogeneity of investment horizons can be a possible explanation of different stylized patterns in stock returns, in particular, mean-reversion and volatility clustering.

… -Sorbonne (Post-Print and …, 2009

Abstract: It is a common wisdom that individual stocks' returns are difficult to predict, th... more Abstract: It is a common wisdom that individual stocks' returns are difficult to predict, though in many situations it is important to have such estimates at our disposal. In particular, they are needed to determine the cost of capital. Market equilibrium models posit that expected ...

... modélisation de la volatilité, GARCH, volatilité stochastique, cascade de volatilité, horizon... more ... modélisation de la volatilité, GARCH, volatilité stochastique, cascade de volatilité, horizonsmultiples dans la ... of them is quite sufficient to represent the whole structure of stock price variability. In particu-lar, most traditional models do not allow for representing returns dynamics ...

We overview different methods of modeling volatility of stock prices and exchange rates, focusing... more We overview different methods of modeling volatility of stock prices and exchange rates, focusing on their ability to reproduce the empirical properties in the corresponding time series. The properties of price fluctuations vary across the time scales of observation. The adequacy of different models for describing price dynamics at several time horizons simultaneously is the central topic of this study. We propose a detailed survey of recent volatility models, accounting for multiple horizons. These models are based on different and sometimes competing theoretical concepts. They belong either to GARCH or stochastic volatility model families and often borrow methodological tools from statistical physics. We compare their properties and comment on their pratical usefulness and perspectives.

copies of this document for non-commercial purposes by any means, provided that this copyright no... more copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.

We decompose volatility of a stock market index both in time and scale using wavelet filters and ... more We decompose volatility of a stock market index both in time and scale using wavelet filters and design a probabilistic indicator for volatilities, analogous to the Richter scale in geophysics. The peakover-threshold method is used to fit the generalized Pareto probability distribution for the extreme values in the realized variances of wavelet coefficients. The indicator is computed for the daily Dow Jones Industrial Average index data from 1896 to 2007 and for the intraday CAC40 data from 1995 to 2006. The results are used for comparison and structural multi-resolution analysis of extreme events on the stock market and for the detection of financial crises.

This paper studies the excess returns on stocks, associated to various company fundamentals on a ... more This paper studies the excess returns on stocks, associated to various company fundamentals on a panel of US stocks from 1979 to 2008. The returns premia are measured using a random coefficient panel data model on the individual stock level. We show that the HML and SMB factors in the Fama and French model probably have no particular economic meaning as sources of systematic risk other than being proxies for the impact of the book-to-price and size characteristics. While the book-to-price ratio, market capitalization, past year sales growth and the share of reinvested profits generate significant premia, earnings history and forecasts are of little predictive power. We statistically confirm the time-varying nature of the style premia but find no strong evidence for the value and growth momentum in a multivariate setting when the systematic risk is controlled for. Some of the premia are positively correlated with the market return and between each other, while others seem to be unrel...

Market prices of risky assets are driven by the actions of economic agents that have different in... more Market prices of risky assets are driven by the actions of economic agents that have different investment horizons: they adjust their portfolios at various frequencies and observe returns at different scales. In this thesis we examine the problem of multiple investment scales from three different angles. In the first place, we study the theoretical implications of the heterogeneity of investors' decision horizons for price dynamics. This analysis is carried in the frameworks of complete and bounded rationality. Second, different time series models of price volatility are examined in view of their capacity to represent the properties of stock returns simultaneously at various time scales. Finally, a method of measuring volatility at multiple scales with wavelet filters is developed, with application to the detection of financial crises.

The Russian establishment- politicians, agricultural officials, corporate farm managers, the medi... more The Russian establishment- politicians, agricultural officials, corporate farm managers, the media- firmly believe that inadequate access to credit is one of the major factors constraining the growth of the agricultural sector. In technical terms, they in effect claim that Russian agriculture faces credit rationing. In this article, we apply discrete regression analysis to study the determinants of access to credit for corporate farms, without addressing the issue of whether or not the actual borrowing is sufficient for the farms' needs. Our analysis shows that factors reflecting economic efficiency are the main determinants of access to credit. On the other hand, asset endowments, such as land and capital stock, have a very weak effect on the ability to borrow. Our findings caution against generalizing the conventional financial patterns of market economies to transition countries.

Risk Management, 2009

We overview different methods of modeling volatility of stock prices and exchange rates, focusing... more We overview different methods of modeling volatility of stock prices and exchange rates, focusing on their ability to reproduce the empirical properties in the corresponding time series. The properties of price fluctuations vary across the time scales of observation. The adequacy of different models for describing price dynamics at several time horizons simultaneously is the central topic of this study. We propose a detailed survey of recent volatility models, accounting for multiple horizons. These models are based on different and sometimes competing theoretical concepts. They belong either to GARCH or stochastic volatility model families and often borrow methodological tools from statistical physics. We compare their properties and comment on their pratical usefulness and perspectives.

It is a common wisdom that individual stocks' returns are difficult to predict, though in many si... more It is a common wisdom that individual stocks' returns are difficult to predict, though in many situations it is important to have such estimates at our disposal. In particular, they are needed to determine the cost of capital. Market equilibrium models posit that expected returns are proportional to the sensitivities to systematic risk factors. Fama and French (1993) three-factor model explains the stock returns premium as a sum of three components due to different risk factors: the traditional CAPM market beta, and the betas to the returns on two portfolios, "Small Minus Big" (the differential in the stock returns for small and big companies) and "High Minus Low" (the differential in the stock returns for the companies with high and low book-to-price ratio). The authors argue that this model is sufficient to capture the impact on returns of companies' accounting fundamentals, such as earnings-toprice, cash flow-to-price, past sales growth, long term and short-term past earnings. Using a panel of stock returns and accounting data from 1979 to 2008 for the companies listed on NYSE, we show that this is not the case, at least at individual stocks' level. According to our findings, fundamental characteristics of companies' performance are of higher importance to predict future expected returns than sensitivities to the Fama and French risk factors. We explain this finding within the rational pricing paradigm: contemporaneous accounting fundamentals may be better proxies for the future sensitivity to risk factors, than the historical covariance estimates.

Http Www Theses Fr, 2010

Les prix de marche des actifs risques sont dictes par les actions des agents economiques qui ont ... more Les prix de marche des actifs risques sont dictes par les actions des agents economiques qui ont des horizons d'investissement differents: ils ajustent leurs portefeuilles a des frequences differentes et observent les rendements a differentes echelles. Dans cette these, nous examinons trois aspects distincts du probleme des horizons multiples d'investissement. En premier lieu, nous etudions les implications theoriques de l'heterogeneite des horizons de decision des investisseurs pour la dynamique des prix. Cette analyse est effectuee dans le cadre d'une rationalite complete et bornee. Deuxiemement, nous testons la capacite de differents modeles de series chronologiques de volatilite des prix a representer les proprietes des rendements boursiers simultanement a differentes echelles de temps. Enfin, nous proposons une methode de mesure de la volatilite a echelle multiple basee sur des filtres d'ondelettes, avec application a la detection des crises financieres.

... modélisation de la volatilité, GARCH, volatilité stochastique, cascade de volatilité, horizon... more ... modélisation de la volatilité, GARCH, volatilité stochastique, cascade de volatilité, horizonsmultiples dans la ... of them is quite sufficient to represent the whole structure of stock price variability. In particu-lar, most traditional models do not allow for representing returns dynamics ...

It is a common wisdom that individual stocks' returns are difficult to predict, though in many si... more It is a common wisdom that individual stocks' returns are difficult to predict, though in many situations it is important to have such estimates at our disposal. In particular, they are needed to determine the cost of capital. Market equilibrium models posit that expected returns are proportional to the sensitivities to systematic risk factors. Fama and French (1993) three-factor model explains the stock returns premium as a sum of three components due to different risk factors: the traditional CAPM market beta, and the betas to the returns on two portfolios, "Small Minus Big" (the differential in the stock returns for small and big companies) and "High Minus Low" (the differential in the stock returns for the companies with high and low book-to-price ratio). The authors argue that this model is sufficient to capture the impact on returns of companies' accounting fundamentals, such as earnings-toprice, cash flow-to-price, past sales growth, long term and short-term past earnings. Using a panel of stock returns and accounting data from 1979 to 2008 for the companies listed on NYSE, we show that this is not the case, at least at individual stocks' level. According to our findings, fundamental characteristics of companies' performance are of higher importance to predict future expected returns than sensitivities to the Fama and French risk factors. We explain this finding within the rational pricing paradigm: contemporaneous accounting fundamentals may be better proxies for the future sensitivity to risk factors, than the historical covariance estimates.

The Russian establishment— politicians, agricultural officials, corporate farm managers, the m... more The Russian establishment— politicians, agricultural officials, corporate farm managers, the media— firmly believe that inadequate access to credit is one of the major factors constraining the growth of the agricultural sector. In technical terms, they in effect claim that Russian agriculture faces credit rationing. In this article, we apply discrete regression analysis to study the determinants of access to credit for corporate farms, without addressing the issue of whether or not the actual borrowing is sufficient for the farms’ needs. Our analysis shows that factors reflecting economic efficiency are the main determinants of access to credit. On the other hand, asset endowments, such as land and capital stock, have a very weak effect on the ability to borrow. Our findings caution against generalizing the conventional financial patterns of market economies to transition countries.

International Journal of Theoretical and Applied Finance, 2015

We propose a Credit Value Adjustment (CVA) model capturing the Wrong Way Risk (WWR) that is not p... more We propose a Credit Value Adjustment (CVA) model capturing the Wrong Way Risk (WWR) that is not product-specific and is suitable for large-scale computations. The model is based on a doubly stochastic default process with the default intensities proxied by credit spreads. For different exposure structures, we show how credit–market correlation affects the CVA level, its sensitivities to credit and market factors, its volatility and the quality of hedging. The WWR is most significant for exposures highly sensitive to the market volatility in a situation when credit spreads are at moderate levels but both the market factors and credit spreads are volatile. In such conditions, ignoring credit–market correlations results in important CVA mispricing. While the benefits from hedging are always magnified in the situation of the WWR, the right way exposure case is more delicate: only a well-designed mix of credit and market hedges can bring volatility down. Our results raise doubts on the B...

Value and growth investment styles are a concept which has gained extreme popularity over the pas... more Value and growth investment styles are a concept which has gained extreme popularity over the past two decades, probably due to its practical efficiency and relative simplicity. We study the mechanics of different factors' impact on excess returns in a multivariate setting. We use a panel of stock returns and accounting data from 1979 to 2007 for the companies listed on NYSE without survivor bias for clustering, regression analysis and constructing style based portfolios. Our findings suggest that value and growth labels often hide important heterogeneity of the underlying sources of risks. Many variables, conventionally used for style definitions, cannot be used jointly, because they affect returns in opposite directions. A simple truth that more variables does not necessarily mean better model nicely summaries our results. We advocate a more flexible approach to analyzing accounting-based factors of outperformance treating them separately before or instead of aggregating.

Journal of Economic Dynamics and Control, 2013

This paper studies the effects of multiple investment horizons and investors' bounded rationality... more This paper studies the effects of multiple investment horizons and investors' bounded rationality on the price dynamics. We consider a pure exchange economy with one risky asset, populated with agents maximizing CRRA-type expected utility of wealth over discrete investment periods. An investor's demand for the risky asset may depend on the historical returns, so that our model encompasses a wide range of behaviorist patterns. The necessary conditions, under which the risky return can be a stationary iid process, are established. The compatibility of these conditions with different types of demand functions in the heterogeneous agents' framework are explored. We find that conditional volatility of returns cannot be constant in many generic situations, especially if agents with different investment horizons operate on the market. In the latter case the return process can display conditional heteroscedasticity, even if all investors are so-called "fundamentalists" and their demand for the risky asset is subject to exogenous iid shocks. We show that the heterogeneity of investment horizons can be a possible explanation of different stylized patterns in stock returns, in particular, mean-reversion and volatility clustering.

… -Sorbonne (Post-Print and …, 2009

Abstract: It is a common wisdom that individual stocks' returns are difficult to predict, th... more Abstract: It is a common wisdom that individual stocks' returns are difficult to predict, though in many situations it is important to have such estimates at our disposal. In particular, they are needed to determine the cost of capital. Market equilibrium models posit that expected ...

... modélisation de la volatilité, GARCH, volatilité stochastique, cascade de volatilité, horizon... more ... modélisation de la volatilité, GARCH, volatilité stochastique, cascade de volatilité, horizonsmultiples dans la ... of them is quite sufficient to represent the whole structure of stock price variability. In particu-lar, most traditional models do not allow for representing returns dynamics ...

We overview different methods of modeling volatility of stock prices and exchange rates, focusing... more We overview different methods of modeling volatility of stock prices and exchange rates, focusing on their ability to reproduce the empirical properties in the corresponding time series. The properties of price fluctuations vary across the time scales of observation. The adequacy of different models for describing price dynamics at several time horizons simultaneously is the central topic of this study. We propose a detailed survey of recent volatility models, accounting for multiple horizons. These models are based on different and sometimes competing theoretical concepts. They belong either to GARCH or stochastic volatility model families and often borrow methodological tools from statistical physics. We compare their properties and comment on their pratical usefulness and perspectives.