Attenuated Asymmetry: How Microstructure Shapes Volatility Dynamics in an Emerging Market

This study investigates whether the canonical asymmetric volatility documented in developed markets can be generalized to an emerging market setting, using the Casablanca Stock Exchange (MASI index, 2011-2023) as a case study. Applying symmetric and asymmetric GARCH models with a three period subsample robustness check (pre-COVID, COVID, post-COVID), we uncover a pattern of attenuated asymmetry. During normal conditions and the COVID-19 crisis, the market exhibits significant volatility persistence coupled with symmetric responses to shocks, challenging the near-universal evidence of leverage effects. However, the post-COVID geopolitical crisis temporarily activates powerful asymmetry, revealing that volatility dynamics are state-dependent and crisis-type specific. The symmetric GARCH model outperforms asymmetric specifications in forecasting accuracy across most periods, demonstrating that additional complexity is unwarranted during normal conditions. These findings show that microstructure characteristics fundamentally shape volatility dynamics, and that the leverage effect cannot be universally assumed across all emerging markets.