Macroeconomic Factors and the Asymmetric Predictability of Conditional Variances

European Financial Management, Vol 4, No 2 July 1998

Posted: 19 May 1998

See all articles by Bill B. Francis

Bill B. Francis

University of South Florida - College of Business Administration

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Abstract

This paper investigates the predictability of the volatilities of large versus small firms. Using AR-GARCH models we show that there is symmetry in the ability of firms of different market values to predict conditional variances. Specifically, we show that volatility surprises of small (large) firms are important in predicting the conditional variance of large (small) firms. These results are different than those previously reported which indicate that there is an asymmetry in the predictability of the volatilities of large versus small firms. This predictive ability is still present when the equation of conditional variance includes state variables such as the default premium, dividend yield and the term premium. Finally, our results indicate that the pattern of symmetric predictability is present in both pre- and post-war sample periods.

JEL Classification: G12, G14

Suggested Citation

Francis, Bill B. and Hasan, Iftekhar, Macroeconomic Factors and the Asymmetric Predictability of Conditional Variances. European Financial Management, Vol 4, No 2 July 1998, Available at SSRN: https://ssrn.com/abstract=86130

Bill B. Francis

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Dept. of Finance
Tampa, FL 33620-5500
United States
813-974-6300 (Phone)
813-974-3030 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/finance/facult

Iftekhar Hasan (Contact Author)

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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