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Leverage Effect and Volatility Asymmetry

In: Current Issues in the Economy and Finance of India

Author

Listed:
  • Parthajit Kayal

    (Madras School of Economics)

  • S. Maheswaran

    (Institute for Financial Management and Research)

Abstract

The leverage effectLeverage effect , the relationship between asset volatilityVolatility and returns is generally examined at contemporaneous or inter-temporal level. Instead, this paper examines the leverage effectLeverage effect over a period by classifying days into positive-return and negative-return days. We also examine the volatility asymmetryVolatility asymmetry in leverage effectLeverage effect by decomposing the volatilityVolatility into up and down volatilities. This paper makes use of extreme value estimatorsExtreme Value Estimators to examine 14 indices from different Emerging economies and 10 indices from developed economies. We document that the evidence of a negative relationship between volatilityVolatility and returns is more prevalent in developed markets. This study also observes a dominance of down volatility Volatility over up volatility Volatility during negative-return days.

Suggested Citation

  • Parthajit Kayal & S. Maheswaran, 2018. "Leverage Effect and Volatility Asymmetry," Springer Proceedings in Business and Economics, in: Aswini Kumar Mishra & Vairam Arunachalam & Debasis Patnaik (ed.), Current Issues in the Economy and Finance of India, chapter 0, pages 131-150, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-99555-7_9
    DOI: 10.1007/978-3-319-99555-7_9
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