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Empirical Economics

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23-06-2018

National culture effects on stock market volatility level

Author: Wei-han Liu

Published in: Empirical Economics | Issue 4/2019

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Abstract

Hofstede’s six measures of national culture (Hofstede in Culture’s consequence. Sage Publications, New York, 1980; Bond and Hofstede in Organ Dyn 16(4):4–21, 1988; Hofstede et al. in Cultures and organizations: software of the mind, 3rd edn. McGraw-Hill, New York, 2010) are applied to study the implied volatility levels in 15 international major equity markets. The cross-sectional analysis, based on the Generalized Additive Model, confirms that all the six measures play an intuitive role in explaining the volatility levels in the respective equity markets. This study confirms the significant long-term role of national culture. The outcomes contribute to provide the specific intuitive patterns of the six measures in explaining the implied volatility levels in the international equity markets.

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The other estimators based on equity market index or equity price level include a close–close volatility estimator, a high-low volatility estimator, and a high–low–open–close volatility estimator.

The words “country” and “nation” are interchangeable in this study.

“Long-term vs. Short-term Orientation” is also referred to as “Pragmatic Versus Normative.”.

For example, the sum of residuals equals zero, and homoscedasticity.

The detailed information about the compiling and calculation of VIX is shown on the webpage: http://www.cboe.com/micro/vix/vixintro.aspx.

GAM’s fitting algorithm is called a backfitting algorithm that is implemented by two layers of loops. Inside each step of the local scoring algorithm (outer loop), a weighted backfitting algorithm (inner loop) is used until convergence.

For example, LOESS (i.e., local regression, also known as locally weighted scatterplot smoothing) fails to yield satisfactory performance when a large number of explanatory variables is included. The sparseness of data in this setting inflates the variance of the estimates. Interpretability is another problem with nonparametric regression based on kernel and smoothing spline estimates.

http://geert-hofstede.com/national-culture.html.

We have tried and treated the change rate of VIX index level as the dependent variable. However, the overall estimation outcomes are not satisfactory due to the general high—values of the coefficient estimates. I choose not to report them here.

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Title: National culture effects on stock market volatility level
Author: Wei-han Liu
Publication date: 23-06-2018
Publisher: Springer Berlin Heidelberg
Published in: Empirical Economics / Issue 4/2019
Print ISSN: 0377-7332
Electronic ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-018-1502-z

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