The Asymmetric Impact Of Firm-specific And Of Index. Returns On The Volatility Processes Of Individual Stocks

Voukelatos, Nikolaos (2010) The Asymmetric Impact Of Firm-specific And Of Index. Returns On The Volatility Processes Of Individual Stocks. Applied Financial Economics, 20 (21). pp. 1627-1638. ISSN 0960-3107. (The full text of this publication is not available from this repository)

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Official URL
http://dx.doi.org/10.1080/09603107.2010.515202

Abstract

This article examines the volatility processes of the 30 constituent stocks of the Dow Jones Industrial Average (DJIA) from 1998 to 2007. Estimating the standard Glosten, Jagannathan and Runkle (GJR) model across the DJIA's components confirms previous empirical findings of individual stocks' conditional variances being less asymmetric than that of the parent index. A modified specification is then tested, termed the GJR-I, where lagged signed market returns have replaced firm-specific returns. The results suggest that individual stock volatility is significantly correlated with past signed index returns and that the asymmetry phenomenon is more pronounced with respect to market news compared to firm-specific news. This result still holds after estimating an extended specification where the conditional variance responds both to idiosyncratic and systematic innovations. The fact that individual stock volatility responds more asymmetrically to market returns than to firm specific returns stands in contrast to the 'leverage effect' as well as 'volatility feedback' explanations, but it is consistent with the hypothesis of the volatility asymmetry phenomenon being a 'down market effect',

Item Type: Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculties > Social Sciences > Kent Business School > Accounting and Finance
Depositing User: Nikolaos Voukelatos
Date Deposited: 01 Feb 2012 13:25
Last Modified: 11 Jun 2014 10:45
Resource URI: http://kar.kent.ac.uk/id/eprint/28642 (The current URI for this page, for reference purposes)
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