Asymmetry in Volatility: A Comparison of Developed and Transition Stock Markets

25 Pages Posted: 13 Mar 2010

See all articles by Piotr Wdowinski

Piotr Wdowinski

University of Lodz; Narodowy Bank Polski; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Marta Malecka

University of Lodz - Department of Statistical Methods

Date Written: March 2010

Abstract

ARCH modelling framework of Engle (1982) and its GARCH generalization of Bollerslev (1986) gave a huge impetus to econometric model building in the field of financial time series with time-varying variance. The main idea of the models was to describe the most typical features of capital markets like volatility clustering, excess kurtosis and fat tails. As empirical evidence shows asymmetry is also a prominent feature of stock market returns volatility. The reaction of risk if stock returns go off the long run trajectory is different in case of positive and negative market news. Thus it is indispensable to employ asymmetric models being a modification of a traditional GARCH. In the paper we used an approach of Engle and Ng (1993) to test for asymmetric effects in stock indices of developed and Central European stock markets.

Keywords: asymmetry, volatility, stock market, transition

JEL Classification: C10, G15

Suggested Citation

Wdowinski, Piotr and Malecka, Marta, Asymmetry in Volatility: A Comparison of Developed and Transition Stock Markets (March 2010). CESifo Working Paper Series No. 2974. Available at SSRN: https://ssrn.com/abstract=1568748

Piotr Wdowinski (Contact Author)

University of Lodz ( email )

Ulica Prezydenta Gabriela
Narutowicza 65 str.
Lodz, 90-131
Poland

Narodowy Bank Polski ( email )

ul. Świętokrzyska 11/21
Warsaw, 00-919
Poland

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Marta Malecka

University of Lodz - Department of Statistical Methods ( email )

Ulica Prezydenta Gabriela
Narutowicza 65 str.
Lodz, 90-131
Poland

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