Gain/loss asymmetry in time series of individual stock prices and its relationship to the leverage effect

Johannes Vitalis Siven and Jeffrey Lins

Papers from arXiv.org

Abstract: Previous research has shown that for stock indices, the most likely time until a return of a particular size has been observed is longer for gains than for losses. We establish that this so-called gain/loss asymmetry is present also for individual stocks and show that the phenomenon is closely linked to the well-known leverage effect -- in the EGARCH model and a modified retarded volatility model, the same parameter that governs the magnitude of the leverage effect also governs the gain/loss asymmetry.

Date: 2009-11, Revised 2009-11
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