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Asymmetric return–volatility relation around the clock

Author

Listed:
  • Erin H. Kao
  • Donald Lien
  • Tsung‐wu Ho

Abstract

This study examines the return‐realized volatility (RV) relation at daily and intraday frequencies. Using daily data, we find the contemporaneous return is the dominating factor for RV, which is in support of the behavioral explanation. For intraday data, we further find a significantly positive (negative) relation between contemporaneous positive (negative) return and RV, which is consistent with prospect theory. Quantile regression analysis documents a U‐shaped (inverted U‐shaped) contemporaneous return‐volatility relation for positive (negative) returns across volatility quantiles during the daytime trading period. In addition, we find the affect heuristic is more aggressive at overnight trading period.

Suggested Citation

  • Erin H. Kao & Donald Lien & Tsung‐wu Ho, 2021. "Asymmetric return–volatility relation around the clock," Review of Financial Economics, John Wiley & Sons, vol. 39(2), pages 178-202, April.
    • Handle: RePEc:wly:revfec:v:39:y:2021:i:2:p:178-202
    DOI: 10.1002/rfe.1115
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    References listed on IDEAS

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