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THE ROLE OF TECHNOLOGY IN ASSET MANAGEMENT AND THE RELATIONSHIP BETWEEN STYLISED FACTS AND THE NATURE OF FINANCIAL MARKETS

ABSTRACT

This work discusses the role of technology in asset management.

Technology is used by both internal and external asset managers to manage data, assess risk, verify compliance, and take care of various operational requirements. Investment professionals make the actual investment decisions, even when technology aids in decision-making.

the so-called leverage effect(a negative correlation between past returns and future volatility), and the increased downside correlations. For individual stocks, the leverage correlation can be rationalized in terms of a new ‘retarded’ model which interpolates between a purely additive and a purely multiplicative stochastic process

The purpose of technology asset management is to ensure that every IT asset is properly used, maintained, upgraded and disposed of at the end of its lifecycle. IT asset management (ITAM) involves using financial, contractual and inventory data to track and make strategic decisions about IT assets. ITAM is the practice of managing and optimizing information technology (IT) assets, such as computers, databases, systems, applications, and networks across an organization3. ITAM is used by both internal and external asset managers to manage data, assess risk, verify compliance, and take care of various operational requirements.

A stylized fact is a term used in economics to refer to empirical findings that are so consistent (for example, across a wide range of instruments, markets and time periods) that they are accepted as truth. Due to their generality, they are often qualitative.

Sewell (2006)

“In social sciences, especially economics, a stylized fact is a simplified presentation of an empirical finding. While results in statistics can only be shown to be highly probable, in a stylized fact, they are presented as true. They are a means to represent complicated statistical findings in an easy way. A stylized fact is often a broad generalisation, which although essentially true may have inaccuracies in the detail.”Wikipedia (2006)

“Definition: Stylized facts are observations that have been made in so many contexts that they are widely understood to be empirical truths, to which theories must fit. Used especially in macroeconomic theory. Considered unhelpful in economic history where context is central. “

About.com (2006)

“Nevertheless, the result of more than half a century of empirical studies on financial time series indicates that this is the case if one examines their properties from a statistical point of view: the seemingly random variations of asset prices do share some quite nontrivial statistical properties. Such properties, common across a wide range of instruments, markets and time periods are called stylized empirical facts.

Stylized facts are thus obtained by taking a common denominator among the properties observed in studies of different markets and instruments. Obviously by doing so one gains in generality but tends to lose in precision of the statements one can make about asset returns. Indeed, stylized facts are usually formulated in terms of qualitative properties of asset returns and may not be precise enough to distinguish among different parametric models. Nevertheless, we will see that, albeit qualitative, these stylized facts are so constraining that it is not easy to exhibit even an (ad hoc) stochastic process which possesses the same set of properties and one has to go to great lengths to reproduce them with a model.”Cont (2001)

“An important part of the research is the analysis of financial data [1-3], which has led to the characterization of some empirical statistical regularities, known as “stylized facts”.”

“The one common observation across these dimensions is that “market activity” is strongly correlated with price variability. Trading volume, return volatility, and bid-ask spreads are highest around the open and close of trading; return variability per unit of time is higher over trading than nontrading periods; trading volume and spreads are particularly high on days with large return innovations; and public information releases—which theoretically may induce price jumps without any trading—are typically associated with extrememely heavy volume.”Andersen and Bollerslev (1998)

TABLE OF CONTENT:

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

1.2     Statement of the Research Problem

1.3     Objectives of the Study

1.4     Significance of the Study

1.5     Research Questions

1.6     Ethical issues

1.7     Research Hypothesis

CHAPTER TWO

LITERATURE REVIEW

2.1     Stylised facts

2.2     Relationship between stylized facts and the nature of financial markets

2.3     Role of technology in asset management

CHAPTER THREE

RESEARCH METHODOLOGY

3.1     Research Method

3.2     Research Design

3.3     Research Sample

3.4     Measuring Instrument

3.5     Data Collection

3.6     Data Analysis

3.7     Expected Result

CHAPTER FOUR

DATA ANALYSIS AND RESULTS

4.1     Data Analysis

4.2     Results

4.3     Discussion

CHAPTER FIVE

Summary And Recommendations

List of references

5.1     Summary

5.2     Recommendations for Further Study

References

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