Conditional Volatility Persistence and Realized Volatility Asymmetry: Evidence from the Chinese Stock Markets

Fei Su and Lei Wang

Emerging Markets Finance and Trade, 2020, vol. 56, issue 14, 3252-3269

Abstract: This study proposes that the overall state of the market, as captured by daily return and volatility, is an important determinant of volatility persistence. By utilizing the realized variance (RV) measure, this paper shows that daily time-varying volatility persistence increases with return but decreases with volatility. Negative returns increase volatility persistence more than positive returns. The dependence of volatility persistence on state variables is termed “conditional volatility persistence”. This study finds that conditional volatility persistence is the dominant channel linking changing market states to future volatility and the model which calibrates future-RV conditionally on market states performs better statistically and economically.

Date: 2020
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DOI: 10.1080/1540496X.2019.1574566

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