NonLinear correlation between two parameters of Stocks?

jolly9 · December 17th, 2009, 4:17 pm

I am working on a quant project. I need to know if there are two parameters related to a particular stock which have a non linear relation as put-up in the attached image. One of the parameter could be volatility or variance or any other.Required relation Image

Alan · December 18th, 2009, 7:09 pm

Y = total expected tax revenue the gov't will collect from the company.X = corporate tax rate (0 - 100%) Or, probably closer to what you were looking for -- for the upper smooth curve: Y = long-run (expected or realized) growth rate from holding the shares, in excess of T-bills.X = total annualized return volatility. The first one is kind of a joke (the so-called Laffer curve).The second one should work as a theoretical expectation (under some models, say CAPM) or say as a smooth fit to some cross-sectional study (across many stocks).

jolly9 · December 18th, 2009, 8:06 pm

Thanks a lot 4 ur help.Can you point to some article or resource where i could get the theory/examples and regenerate this for some stocks? You r very helpful, even in jokes!

Alan · December 18th, 2009, 8:17 pm

You're welcome.For the joke one, google 'Laffer curve'.For the second, google something like 'volatility drag', which will turn up things like this