Essays in Financial Economics

This thesis consists of three chapters. The first chapter investigates the volatility asymmetry of hedge fund returns. We find evidences of volatility asymmetry in hedge fund returns by fitting the returns with EGARCH and GJR-GARCH model. The results of these models show different return-volatility relation across hedge funds. This difference is also demonstrated by the different impact of bad news and good news on the volatility of hedge fund returns. In addition to the well-known leverage effect, we also find the existence of inverse leverage effect. By using the tool of quantile autoregression, we confirm the return-volatility relation found in the GARCH models. We further investigate the return-volatility relation in Managed Futures funds. This study uncovers the special return-volatility relationship in the Managed Futures. Chapter 2 studies the conditional autocorrelation of hedge fund indexes. A dynamic conditional correlation (DCC) model is used to estimate the conditional autocorrelation of hedge fund indexes from 1994 to 2015. We document the different patterns of conditional autocorrelation for hedge funds during the financial crisis. After accounting for the conditional autocorrelation, we find that the hedge fund's performances are not as high as they are reported. The relationship between conditional autocorrelations and other factors, such as volatility are also investigated. In chapter 3, we study the relationship between intraday trading activity and volatility on Dow Jones 30 stocks. We model the trading activity by a double stochastic model. Our model is able to capture the main features in intraday trading activity, including diurnal pattern and strong persistence. We also find that the positive relationship between trading activity and volatility is stronger when there are large shocks in trading activity.