Leverage and Volatility Feedback Effects in High-Frequency Data

34 Pages Posted: 18 Aug 2005

See all articles by Tim Bollerslev

Tim Bollerslev

Duke University - Finance; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Julia Litvinova

Brattle Group

George Tauchen

Duke University - Economics Group

Multiple version iconThere are 2 versions of this paper

Date Written: May 2005

Abstract

We examine the relationship between volatility and past and future returns in high-frequency equity market data. Consistent with a prolonged leverage effect, we find the correlations between absolute high-frequency returns and current and past high-frequency returns to be significantly negative for several days, while the reverse cross-correlations between absolute returns and future returns are generally negligible. Based on a simple aggregation formula, we demonstrate how the high-frequency data may similarly be used in more effectively assessing volatility asymmetries over longer daily return horizons. Motivated by the striking cross-correlation patterns uncovered in the high-frequency data, we investigate the ability of some popular continuous-time stochastic volatility models for explaining the observed asymmetries. Our results clearly highlight the importance of allowing for multiple latent volatility factors at very fine time scales in order to adequately describe and understand the patterns in the data.

Keywords: Volatility asymmetry, leverage effect, volatility feedback effect

JEL Classification: G12, C51, C22, C13

Suggested Citation

Bollerslev, Tim and Litvinova, Julia and Tauchen, George E., Leverage and Volatility Feedback Effects in High-Frequency Data (May 2005). Available at SSRN: https://ssrn.com/abstract=782768 or http://dx.doi.org/10.2139/ssrn.782768

Tim Bollerslev

Duke University - Finance ( email )

Durham, NC 27708-0120
United States
919-660-1846 (Phone)
919-684-8974 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Julia Litvinova

Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

George E. Tauchen (Contact Author)

Duke University - Economics Group ( email )

Box 90097
221 Social Sciences
Durham, NC 27708-0097
United States
919-660-1812 (Phone)
919-684-8974 (Fax)

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