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Asymmetry with respect to the memory in stock market volatilities

Author

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  • Carl Lönnbark

    (Umeå University)

Abstract

The empirically most relevant stylized facts when it comes to modeling time-varying financial volatility are the asymmetric response to return shocks and the long memory property. Up till now, these have largely been modeled in isolation. To capture asymmetry also with respect to the memory structure, we introduce a new model and apply it to stock market index data. We find that although the effect on volatility of negative return shocks is higher than for positive ones, the latter are more persistent and relatively quickly dominate negative ones.

Suggested Citation

  • Carl Lönnbark, 2016. "Asymmetry with respect to the memory in stock market volatilities," Empirical Economics, Springer, vol. 50(4), pages 1409-1419, June.
    • Handle: RePEc:spr:empeco:v:50:y:2016:i:4:d:10.1007_s00181-015-0975-2
    DOI: 10.1007/s00181-015-0975-2
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    More about this item

    Keywords

    Financial econometrics; GARCH; News impact; Nonlinear; Risk prediction; Time series;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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