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Occurrence of long and short term asymmetry in stock market volatilities

Author

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  • Lönnbark, Carl

    (Department of Economics, Umeå University)

Abstract

We introduce the notions of short and long term asymmetric effects in volatilities. With short term asymmetry we mean the conventional one, i.e. the asymmetric response of current volatility to the most recent return shocks. However, there may be asymmetries in the way the effect of past return shocks propagate over time as well. We refer to this as long term asymmetry. We propose a model that enables the study of such a feature. In an empirical application using stock market index data we found evidence of the joint presence of short and long term asymmetric effects.

Suggested Citation

  • Lönnbark, Carl, 2012. "Occurrence of long and short term asymmetry in stock market volatilities," Umeå Economic Studies 848, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0848
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    Keywords

    Financial econometrics; GARCH; memory; nonlinear; risk prediction; time series;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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