The Determinants of Asymmetric Volatility

33 Pages Posted: 27 Dec 2000

See all articles by Guojun Wu

Guojun Wu

University of Houston; China Academy of Financial Research (CAFR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2001

Abstract

Volatility in equity markets is asymmetric: contemporaneous return and conditional return volatility are negatively correlated. In this paper we 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 the asymmetry. The model is estimated by the simulated method of moments. We find that both the leverage effect and the volatility feedback are important determinants of asymmetric volatility, and volatility feedback is significant both statistically and economically.

Keywords: Asset pricing, volatility, asymmetric volatility, leverage effect, volatility feedback

JEL Classification: G10, G12, C5

Suggested Citation

Wu, Guojun, The Determinants of Asymmetric Volatility (May 2001). Available at SSRN: https://ssrn.com/abstract=248285 or http://dx.doi.org/10.2139/ssrn.248285

Guojun Wu (Contact Author)

University of Houston ( email )

220F Melcher Hall
Houston, TX 77204-6021
United States
713-743-4813 (Phone)
713-743-4789 (Fax)

HOME PAGE: http://www.bauer.uh.edu/wu

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Register to save articles to
your library

Register

Paper statistics

Downloads
873
Abstract Views
2,349
rank
25,996
PlumX Metrics