| Title: | Rational Speculators And Equity Volatility as a Measure of Ex Ante Risk |
| Number: | 01-02 |
| Author: | Amir Kia |
| Issue Date: | February 2001 |
| Abstract: | A macro-determinant model of stock return volatility using monthly data on Canadian and U.S. markets is estimated. If volatility is a measure of risk, one should verify whether the estimated volatility is a measure of future (ex ante) risk or realized (ex post) risk. When speculators are rational the volatility created by their activities can be a measure for ex ante risk. It is found that the growth of commodity price, which was ignored in this literature, is also a factor in the equity return volatility. Furthermore, 71% of the volatility of Canadian stock returns is explained by the behavior of rational speculators. |
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