dorsal/arxiv
View SchemaAsymmetric Conditional Volatility in International Stock Markets
| Authors | Nuno B. Ferreira, Rui Menezes, Diana A. Mendes |
|---|---|
| Categories | |
| ArXiv ID | physics/0607222 |
| URL | https://arxiv.org/abs/physics/0607222 |
| DOI | 10.1016/j.physa.2007.02.010 |
Abstract
Recent studies show that a negative shock in stock prices will generate more volatility than a positive shock of similar magnitude. The aim of this paper is to appraise the hypothesis under which the conditional mean and the conditional variance of stock returns are asymmetric functions of past information. We compare the results for the Portuguese Stock Market Index PSI 20 with six other Stock Market Indices, namely the S&P 500, FTSE100, DAX 30, CAC 40, ASE 20, and IBEX 35. In order to assess asymmetric volatility we use autoregressive conditional heteroskedasticity specifications known as TARCH and EGARCH. We also test for asymmetry after controlling for the effect of macroeconomic factors on stock market returns using TAR and M-TAR specifications within a VAR framework. Our results show that the conditional variance is an asymmetric function of past innovations raising proportionately more during market declines, a phenomenon known as the leverage effect. However, when we control for the effect of changes in macroeconomic variables, we find no significant evidence of asymmetric behaviour of the stock market returns. There are some signs that the Portuguese Stock Market tends to show somewhat less market efficiency than other markets since the effect of the shocks appear to take a longer time to dissipate.
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"abstract": "Recent studies show that a negative shock in stock prices will generate more\nvolatility than a positive shock of similar magnitude. The aim of this paper is\nto appraise the hypothesis under which the conditional mean and the conditional\nvariance of stock returns are asymmetric functions of past information. We\ncompare the results for the Portuguese Stock Market Index PSI 20 with six other\nStock Market Indices, namely the S\u0026P 500, FTSE100, DAX 30, CAC 40, ASE 20, and\nIBEX 35. In order to assess asymmetric volatility we use autoregressive\nconditional heteroskedasticity specifications known as TARCH and EGARCH. We\nalso test for asymmetry after controlling for the effect of macroeconomic\nfactors on stock market returns using TAR and M-TAR specifications within a VAR\nframework. Our results show that the conditional variance is an asymmetric\nfunction of past innovations raising proportionately more during market\ndeclines, a phenomenon known as the leverage effect. However, when we control\nfor the effect of changes in macroeconomic variables, we find no significant\nevidence of asymmetric behaviour of the stock market returns. There are some\nsigns that the Portuguese Stock Market tends to show somewhat less market\nefficiency than other markets since the effect of the shocks appear to take a\nlonger time to dissipate.",
"arxiv_id": "physics/0607222",
"authors": [
"Nuno B. Ferreira",
"Rui Menezes",
"Diana A. Mendes"
],
"categories": [
"physics.soc-ph",
"q-fin.ST"
],
"doi": "10.1016/j.physa.2007.02.010",
"title": "Asymmetric Conditional Volatility in International Stock Markets",
"url": "https://arxiv.org/abs/physics/0607222"
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