TAILIEUCHUNG - THE VOLATILITY OF THE STOCK MARKET AND NEWS

A stock option is a contract which conveys to its holder the right, but not the obligation, to buy or sell shares of the underlying security at a specified price on or before a given date. This right is granted by the seller of the option. There are two types of options, calls and puts. A call option gives its holder the right to buy an underlying security, whereas a put option conveys the right to sell an underlying security. For example, an American-style XYZ Corp. May 60 call entitles the buyer to purchase 100 shares of XYZ Corp. common stock at $60 per share at. | International Research Journal of Finance and Economics ISSN 1450-2887 Issue 11 2007 EuroJournals Publishing Inc. 2007 http finance .htm The Volatility of the Stock Market and News Rohitha Goonatilake Department of Mathematical and Physical Sciences Texas A MInternational University 5201 University Boulevard Laredo Texas 78041-1900 E-mail harag@ Susantha Herath Department of Business Computer Information Systems St. Cloud State University 720 Fourth Avenue South St. Cloud Minnesota 56301-4498 E-mail sherath@ Abstract The volatility of stock market indicators goes beyond anyone s reasonable explanations. Industry performance economic and political changes are among the major factors that can affect the stock market. This paper focuses on the effect of news that surfaces throughout the day in the stock market. While there are many influences behind the constant changes in stock market performance we can statistically analyze the influence of news on the DJIA NASDAQ and S P 500. From the analysis of the data collected over a ten-week period of time we were able to conclude that there is an association between news items and the market fluctuations measured by an increase a decrease or unchanged. The association between the market fluctuations of the DJIA and crude oil stock prices is adequately explored to obtain a regression model in this paper. Keywords News market indicators volatility fluctuations Black-Scholes option pricing formula Markovian analysis Jel Classification Codes A12 C02 1. Introduction Market performances are not entirely data driven with the exception of the simplest open-air markets trade is rarely a face-to-face transaction between a producer and a consumer 1 . There are many factors that influence the market indicators on a given day. Rising investor confidence fueled by soaring corporate profits and new market opportunities are made possible by globalization and the Internet generate nearly a decade

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