Publication Type
Working Paper
Version
publishedVersion
Publication Date
11-2004
Abstract
This paper examines the asymmetric response of equity volatility to return shocks. We generalize the news impact function (NIF), originally introduced by Engle and Ng (1993) to study asymmetric volatility under the ARCH-type models, to be applicable to both stochastic volatility (SV) and ARCH-type models. Based on the generalized concept, we provide a unified framework to examine asymmetric properties of volatility. A new asymmetric volatility model, which nests both ARCH and SV models and at the same time allows for a more flexible NIF, is proposed. Empirical results based on daily index return data support the classical asymmetric SV model with a monotonically decreasing NIF. This empirical result is further reinforced by the realized volatility obtained from high frequency intraday data. We document the option pricing implications of these findings.
Keywords
Bayes factors, Leverage effect, Markov chain Monte Carlo, EGARCH, Realized volatility, Asymmetric volatility
Discipline
Econometrics
Research Areas
Econometrics
Volume
24-2004
First Page
1
Last Page
29
Publisher
SMU Economics and Statistics Working Paper Series, No. 24-2004
City or Country
Singapore
Citation
YU, Jun.
Asymmetric Response of Volatility: Evidence from Stochastic Volatility Models and Realized Volatility. (2004). 24-2004, 1-29.
Available at: https://ink.library.smu.edu.sg/soe_research/820
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.