Testing for leverage effects in the returns of US equities

Christophe Chorro, Dominique Guégan, Florian Ielpo and Hanjarivo Lalaharison

Journal of Empirical Finance, 2018, vol. 48, issue C, 290-306

Abstract: This article questions the empirical usefulness of leverage effects to forecast the dynamics of equity returns. In sample, we consistently find a significant but limited contribution of leverage effects over the past 25 years of S&P 500 returns. From an out-of-sample forecasting perspective and using a variety of different models, we find no statistical or economical value in using leverage effects, provided that an asymmetric and fat-tailed conditional distribution is used. This conclusion holds both at the index level and for 70% of the individual stocks constituents of the equity index.

Keywords: Asymmetry; GARCH; Mixture of Gaussian distributions; Generalized hyperbolic distributions; S&P 500; Leverage effect (search for similar items in EconPapers)
JEL-codes: C12 C22 G17 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Testing for leverage effects in the returns of US equities (2018)
Working Paper: Testing for Leverage Effects in the Returns of US Equities (2017)
Working Paper: Testing for Leverage Effects in the Returns of US Equities (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:48:y:2018:i:c:p:290-306

DOI: 10.1016/j.jempfin.2018.07.008

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