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

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  • Ólan T. Henry
  • John Sharma

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.

Suggested Citation

  • Ólan T. Henry & John Sharma, 1999. "Asymmetric Conditional Volatility and Firm Size: Evidence from Australian Equity Portfolios," Australian Economic Papers, Wiley Blackwell, vol. 38(4), pages 393-406, December.
    • Handle: RePEc:bla:ausecp:v:38:y:1999:i:4:p:393-406
    DOI: 10.1111/1467-8454.00064
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    Cited by:

    1. Chris Brooks & Ólan T. Henry, 2002. "The Impact of News on Measures of Undiversifiable Risk: Evidence from the UK Stock Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(5), pages 487-507, December.
    2. Palani-Rajan Kadapakkam & Timothy Krause & Yiuman Tse, 2015. "Exchange traded funds, size-based portfolios, and market efficiency," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 89-110, July.
    3. Martínez, Beatriz & Torró, Hipòlit, 2015. "European natural gas seasonal effects on futures hedging," Energy Economics, Elsevier, vol. 50(C), pages 154-168.
    4. 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.
    5. Vicente Meneu & Hipòlit Torró, 2003. "Asymmetric covariance in spot‐futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(11), pages 1019-1046, November.
    6. 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.
    7. Abdul Qayyum & A. R. Kemal, 2006. "Volatility Spillover between the Stock Market and the Foreign Market in Pakistan," Finance Working Papers 22216, East Asian Bureau of Economic Research.
    8. 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.
    9. Abdul Qayyum & Muhammad Arshad Khan, 2014. "Dynamic Relationship and Volatility Spillover between the Stock Market and the Foreign Exchange Market in Pakistan: Evidence from VAR-EGARCH Modelling," PIDE-Working Papers 2014:103, Pakistan Institute of Development Economics.
    10. Torro, Hipolit, 2009. "Assessing the influence of spot price predictability on electricity futures hedging," MPRA Paper 18892, University Library of Munich, Germany.
    11. Palani-Rajan Kadapakkam & Timothy Krause & Yiuman Tse, 2013. "Exchange Traded Funds, Size-Based Portfolios, And Market Efficiency," Working Papers 0214fin, College of Business, University of Texas at San Antonio.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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