Testing for Leverage Effects in the Returns of US Equities

CES Working Papers No. 2014.22

16 Pages Posted: 7 Apr 2015 Last revised: 12 Jan 2017

See all articles by Christophe Chorro

Christophe Chorro

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES)

Dominique Guegan

Université Paris I Panthéon-Sorbonne

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); Unigestion

Hanjarivo Lalaharison

Université Paris I Panthéon-Sorbonne - CERMSEM

Date Written: December 22, 2016

Abstract

This article questions the empirical usefulness of leverage effects to describe the dynamics of equity returns. Relying on both in and out of sample tests we consistently find a weak contribution of leverage effects over the past 25 years of S&P 500 returns. The skewness in the conditional distribution of the return’s time series model is found to explain most of the returns’ distribution’s asymmetry. This conclusion holds both at the index level and for 70% of the individual stocks constituents of the equity index.

Keywords: Asymmetry, GARCH, Mixture of Gaussian distributions, Generalized hyperbolic distributions, S&P 500, Leverage effect

JEL Classification: C12, C22, G17

Suggested Citation

Chorro, Christophe and Guegan, Dominique and Ielpo, Florian and Lalaharison, Hanjarivo, Testing for Leverage Effects in the Returns of US Equities (December 22, 2016). CES Working Papers No. 2014.22. Available at SSRN: https://ssrn.com/abstract=2590269 or http://dx.doi.org/10.2139/ssrn.2590269

Christophe Chorro

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Dominique Guegan

Université Paris I Panthéon-Sorbonne ( email )

106 avenue de lhopital
75634 Paris Cedex 13
Paris, IL
France

Florian Ielpo (Contact Author)

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Unigestion ( email )

8c, avenue de Champel CP 387
CP 387
Genève 12, CH 1211
Switzerland

Hanjarivo Lalaharison

Université Paris I Panthéon-Sorbonne - CERMSEM ( email )

106-112, Boulevard de l'Hôpital
Paris, 75647
France

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