Think Again: Volatility Asymmetry and Volatility Persistence

37 Pages Posted: 8 Jul 2016 Last revised: 9 Feb 2017

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Thomas Dimpfl

University of Tuebingen - Department of Statistics and Econometrics

Date Written: January 8, 2017

Abstract

We use quantile regressions to demonstrate that volatility persistence and the asymmetric "leverage" effect are high volatility phenomena. More specifically, we find that (i) low volatility is not persistent, but high volatility all the more, even featuring properties of explosive processes; (ii) both positive and negative shocks increase volatility but negative shocks display a stronger effect; and (iii) jumps do neither drive nor destroy the persistence of volatility. The analysis illustrates that quantile regression can provide information that is hidden in commonly used GARCH or realized volatility models. The quantile regression results also explain the weak empirical evidence of the leverage effect and the volatility feedback effect.

Keywords: volatility asymmetry; volatility persistence; volatility feedback; GARCH; realized volatility; jumps; quantile regression

JEL Classification: C22, C58, G14

Suggested Citation

Baur, Dirk G. and Dimpfl, Thomas, Think Again: Volatility Asymmetry and Volatility Persistence (January 8, 2017). Available at SSRN: https://ssrn.com/abstract=2806970 or http://dx.doi.org/10.2139/ssrn.2806970

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Thomas Dimpfl

University of Tuebingen - Department of Statistics and Econometrics ( email )

Germany

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