Explaining Asymmetric Volatility around the World
54 Pages Posted: 11 Feb 2009
Date Written: February 11, 2009
Based on the APARCH model and two outlier detection methods, we compute reliable time series of volatility asymmetry for 49 countries with relatively few observations. Results show a steady increase in the asymmetry over the years for most countries. We find that economic development and market capitalization/GDP are the most important factors that increase volatility asymmetry. We also find that higher participation of private investors and coverage by financial analysts increases the asymmetry, suggesting investor sentiment as a driving force. Leverage and feasibility of short-selling increase volatility in falling market conditions, although only to a smaller extent.
Keywords: Volatility asymmetry, leverage effect, short-selling, APARCH model
JEL Classification: D49, G15, G19
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