Research On Common Persistence In Conditional Variances Theory And Its Application

The dissertation demonstrates the flaws of co-persistence theory proposed byBollerslev and Engle (1993) which causes the theory can hardly be applied. With theintroduction of the half-life of decay coefficient as the measure of the persistence, andboth the weak definition of persistence and co-persistence in variance, this studyattempts to solve the problems by using exhaustive search algorithm for obtainingco-persistent vector. In addition, this method is illustrated to research the co-persistenceof stock return volatility in10European countries. There is only one pair of stock returnare co-persistent in the Germanic area, and no any pair of stock return are co-persistentin the French area and one pair of stock return are co-persistent the Scandinavian. Thereare two pairs of stock return are co-persistent between the Germanic area and the Frencharea, three pairs of stock return are co-persistent between the Germanic area and theScandinavian area and no any pair of stock return are co-persistent between the Frencharea and the Scandinavian area. The stock returns of the countries in the Germanic areaand the Scandinavian area are co-persistent but the French area.This dissertation also analyzes the relationship between co-persistence and hedgingwhich indicates co-persistence ratio is just the long-term hedging ratio. We develop anew hedging strategy of combining co-persistence with dynamic hedging which canenhance the hedging effectiveness and reduce the persistence of the hedged portfolio.Finally our strategy is illustrated to study the hedge of JIASHI300index and HS300stock index future.