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Asymmetric Conditional Volatility and Firm Size: Evidence from Australian Equity Portfolios

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  • Henry, Olan T
  • Sharma, John

Abstract

This paper examines the relationship between firm size and equity volatility for two portfolios of Australian equities. Univariate and Multivariate GARCH models are used to demonstrate that conditional variance is related to firm size. There is strong evidence to suggest that the variance-covariance matrix of returns is time varying and asymmetric. A negative innovation to the return of the large firm portfolio results in higher levels of conditional volatility in the small firm portfolio than would be the case for a positive innovation of equal magnitude. News about own returns appears to determine the conditional variance of the portfolio of large firms. The conditional covariance between the two portfolios also displays evidence of asymmetry. Copyright 1999 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Australian Economic Papers.

Volume (Year): 38 (1999)
Issue (Month): 4 (December)
Pages: 393-406

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Handle: RePEc:bla:ausecp:v:38:y:1999:i:4:p:393-406

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0004-900X

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Cited by:
  1. Ewing, Bradley T. & Malik, Farooq, 2005. "Re-examining the asymmetric predictability of conditional variances: The role of sudden changes in variance," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2655-2673, October.
  2. Abdul Qayyum & A. R. Kemal, 2006. "Volatility Spillover between the Stock Market and the Foreign Market in Pakistan," PIDE-Working Papers 2006:7, Pakistan Institute of Development Economics.
  3. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2008. "Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience," Working papers 2008-49, University of Connecticut, Department of Economics.
  4. Torro, Hipolit, 2009. "Assessing the influence of spot price predictability on electricity futures hedging," MPRA Paper 18892, University Library of Munich, Germany.
  5. Henry, Ólan & Olekalns, Nilss & Shields, Kalvinder, 2010. "Sign and phase asymmetry: News, economic activity and the stock market," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1083-1100, December.
  6. Vicente Meneu & Hipolit Torro, . "Asymmetric covariance in sport-future markets," Studies on the Spanish Economy 135, FEDEA.

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