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Asymmetry in Volatility: A Comparison of Developed and Transition Stock Markets

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  • Piotr Wdowinski
  • Marta Malecka

Abstract

ARCH modelling framework of Engle (1982) and its GARCH generalization of Bollerslev (1986) gave a huge impetus to econometric model building in the field of financial time series with time-varying variance. The main idea of the models was to describe the most typical features of capital markets like volatility clustering, excess kurtosis and fat tails. As empirical evidence shows asymmetry is also a prominent feature of stock market returns volatility. The reaction of risk if stock returns go off the long run trajectory is different in case of positive and negative market news. Thus it is indispensable to employ asymmetric models being a modification of a traditional GARCH. In the paper we used an approach of Engle and Ng (1993) to test for asymmetric effects in stock indices of developed and Central European stock markets.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-03/cesifo1_wp2974.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2974.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2974

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Keywords: asymmetry; volatility; stock market; transition;

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References

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  1. Schwert, G.W., 1989. "Stock Volatility And The Crash Of '87," Papers 89-01, Rochester, Business - General.
  2. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
  3. McAleer, Michael & Chan, Felix & Marinova, Dora, 2007. "An econometric analysis of asymmetric volatility: Theory and application to patents," Journal of Econometrics, Elsevier, vol. 139(2), pages 259-284, August.
  4. Schwert, G.W. & Seguin, P.J., 1988. "Heteroskedasticity In Stock Returns," Papers bc_88-02, Rochester, Business - General.
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  7. Priti Verma & Dave Jackson, 2008. "Interest rate and bank stock returns asymmetry: Evidence from U.S. banks," Journal of Economics and Finance, Springer, vol. 32(2), pages 105-118, April.
  8. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  9. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  10. Gregory Koutmos & Andreas Pericli & Lenos Trigeorgis, 2006. "Short-term Dynamics in the Cyprus Stock Exchange," The European Journal of Finance, Taylor & Francis Journals, vol. 12(3), pages 205-216.
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  12. Chen, Cathy W.S. & Yang, Ming Jing & Gerlach, Richard & Jim Lo, H., 2006. "The asymmetric reactions of mean and volatility of stock returns to domestic and international information based on a four-regime double-threshold GARCH model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 366(C), pages 401-418.
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  16. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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Cited by:
  1. Lai, Jing-yi, 2012. "Shock-dependent conditional skewness in international aggregate stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(1), pages 72-83.

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