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The Determinants of Asymmetric Volatility

The Determinants of Asymmetric Volatility Volatility in equity markets is asymmetric: contemporaneous return and conditional return volatility are negatively correlated. In this article I develop an asymmetric volatility model where dividend growth and dividend volatility are the two state variables of the economy. The model allows both the leverage effect and the volatility feedback effect, the two popular explanations of asymmetry. The model is estimated by the simulated method of moments. I find that both the leverage effect and volatility feedback are important determinants of asymmetric volatility, and volatility feedback is significant both statistically and economically. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

The Determinants of Asymmetric Volatility

The Review of Financial Studies , Volume 14 (3) – Jul 1, 2001

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Publisher
Oxford University Press
Copyright
Copyright The Society for Financial Studies 2001
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/14.3.837
Publisher site
See Article on Publisher Site

Abstract

Volatility in equity markets is asymmetric: contemporaneous return and conditional return volatility are negatively correlated. In this article I develop an asymmetric volatility model where dividend growth and dividend volatility are the two state variables of the economy. The model allows both the leverage effect and the volatility feedback effect, the two popular explanations of asymmetry. The model is estimated by the simulated method of moments. I find that both the leverage effect and volatility feedback are important determinants of asymmetric volatility, and volatility feedback is significant both statistically and economically.

Journal

The Review of Financial StudiesOxford University Press

Published: Jul 1, 2001

There are no references for this article.