Firm Size and Volatility Analysis in the Spanish Stock Market
41 Pages Posted: 20 Feb 2007
Date Written: February 2007
In this article, three strongly related questions are studied. First, volatility spillovers between large and small firms in the Spanish stock market are analyzed by using a conditional CAPM with an asymmetric multivariate GARCH-M covariance structure. Results show that there exist bidirectional volatility spillovers between both types of firms, especially after bad news. Second, the volatility feedback hypothesis explaining the volatility asymmetry feature is investigated. Results show significant evidence for this hypothesis. Finally, the study uncovers that conditional beta coefficient estimates within the used model are insensitive to sign and size asymmetries in the unexpected shock returns but the unconditional beta estimate has a significant error specification. These results are relevant for asset valuation, portfolio management and dynamic hedging strategies design.
Keywords: Volatility Spillovers, GARCH, Large and Small Firms, Risk Premium
JEL Classification: C12, C32, G11, G12
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