Asymmetric Conditional Volatility on the Romanian Stock Market
AbstractRecent studies show that a negative shock in stock prices will generate more volatility than a positive shock of similar magnitude. The aim of this paper is to test the hypothesis under which the the conditional variance of stock returns is an asymmetric function of past information. This paper investigates the volatility of the Romanian Stock Market using daily observations from BETC Index for the period from 1998 to 2008. The empirical analysis supports the hypothesis of asymmetric volatility; hence, good and bad news of the same magnitude have different impacts on the volatility level. In order to assess asymmetric volatility we use autoregressive conditional heteroskedasticity specifications known as TARCH and EGARCH. Our results show that the conditional variance is an asymmetric function of past innovations raising proportionately more during market declines, a phenomenon known as the leverage effect.
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Bibliographic InfoPaper provided by Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB in its series Advances in Economic and Financial Research - DOFIN Working Paper Series with number 32.
Date of creation: Oct 2009
Date of revision:
asymmetric conditional volatility; stock market;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-21 (All new papers)
- NEP-FMK-2009-11-21 (Financial Markets)
- NEP-TRA-2009-11-21 (Transition Economics)
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