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The Good and Bad Volatility: A New Class of Asymmetric Heteroskedastic Models

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  • Ahmed BenSaïda

Abstract

This paper introduces a new class of tractable asymmetric heteroskedastic models, the good and bad volatility (GBV). Asymmetry is recognized in the dynamics of GBV components that correspond to positive and negative shocks respectively. The GBV model allows both conditional semivariances to evolve according to two separate functional forms with different semi‐definite distributions. An empirical application to six major index returns shows a fitting improvement over well‐known asymmetric volatility models in the financial literature. The model further leads to significant improvements in forecasting performance. The derived nontrivial news impact curves convey the dichotomy that asymmetry in financial returns has different dynamics for positive and negative shocks.

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  • Ahmed BenSaïda, 2021. "The Good and Bad Volatility: A New Class of Asymmetric Heteroskedastic Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(2), pages 540-570, April.
    • Handle: RePEc:bla:obuest:v:83:y:2021:i:2:p:540-570
    DOI: 10.1111/obes.12398
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    Cited by:

    1. Sheng, Lin Wen & Uddin, Gazi Salah & Sen, Ding & Hao, Zhu Shi, 2024. "The asymmetric volatility spillover across Shanghai, Hong Kong and the U.S. stock markets: A regime weighted measure and its forecast inference," International Review of Financial Analysis, Elsevier, vol. 91(C).
    2. Chemkha, Rahma & BenSaïda, Ahmed & Ghorbel, Ahmed & Tayachi, Tahar, 2021. "Hedge and safe haven properties during COVID-19: Evidence from Bitcoin and gold," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 71-85.
    3. Ahmed BenSaïda, 2023. "The linkage between Bitcoin and foreign exchanges in developed and emerging markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-27, December.

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