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Time-Varying Volatility Asymmetry: A Conditioned HAR-RV(CJ) EGARCH-M Model

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  • Ceylan, Ozcan

    ()
    (Galatasaray University Economic Research Center)

Abstract

Based on the recent developments in the high-frequency econometrics and asymmetric GARCH modeling literature, I develop a novel model that accounts for the volatility feedback and leverage effects, effectively incorporating signed continuous and jump components of the realized variance in the variance specification through an HAR forecasting model. I then condition the variance specification on the lagged realized variance and the risk aversion (that is proxied by the variance risk premium level) to analyze the eventual state-dependent variations in the volatility asymmetry. I find that the volatility asymmetry is clearly more pronounced in the periods of market stress marked by high levels of volatility and risk aversion. In addition, I reveal a further asymmetry in the asymmetric reaction patterns of the volatility to good and bad news: while the market moves through the periods of higher volatility and risk aversion, the impact of a bad news increases much more heavily than that of good news pointing to the fact that the investors become more sensible to bad news in market downturns.

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Bibliographic Info

Paper provided by Galatasaray University Economic Research Center in its series GIAM Working Papers with number 12-4.

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Length: 25 pages
Date of creation: 05 Sep 2012
Date of revision:
Handle: RePEc:ris:giamwp:2012_004

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Keywords: Time-varying volatility asymmetry; High-frequency econometrics; EGARCH-M; HAR models; Volatility components; Variance risk premium;

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References

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Cited by:
  1. Shcherba, Alexandr, 2014. "Comparing «Realized volatility» models in the VaR calculation for the Russian equity market," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 34(2), pages 120-136.

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