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How Does Systematic Risk Impact Stocks ? A Study On the French Financial Market

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  • Hayette Gatfaoui

    (The University of Paris 1 - Panthéon-Sorbonne)

Abstract

From CAC40 French stock index, we induce the implied market factor’s level through the inversion of a closed form pricing formula for European calls on the CAC40. For this purpose, we assume that the CAC40 index is a disturbed observation of the actual market factor, the market factor's diffusion following a geometric Brownian motion. All the assumptions prevailing in a Black & Scholes world are assumed to hold. Based on daily data, the results show that the level of the implied market factor and its instantaneous return’s volatility are leptokurtic distributed. Having a proxy for the systematic risk, we also study the impact of the implied market factor on a basket of French assets. First, we compute correlations of assets’ returns with the return of the implied market factor, and realize as well a VAR study and a Granger causality test. Second, we estimate regressions of French assets’ returns on the return of the implied market factor. Then, we characterize the prevailing relationship between the weekly rolling volatility of the return of the implied market factor and weekly rolling volatilities of the French asset returns. These two studies lead to mitigated results.

Suggested Citation

  • Hayette Gatfaoui, 2003. "How Does Systematic Risk Impact Stocks ? A Study On the French Financial Market," Risk and Insurance 0308004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpri:0308004
    Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP/PostScript; pages: 16 ; figures: included. We never published this piece.
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    References listed on IDEAS

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    1. Lintner, John, 1969. "The Aggregation of Investor's Diverse Judgments and Preferences in Purely Competitive Security Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 4(4), pages 347-400, December.
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    Cited by:

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    More about this item

    Keywords

    Call pricing Granger causality implied volatility option pricing systematic risk;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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