Why do firms with no leverage still have leverage and volatility feedback effects?

Geoffrey Peter Smith

Journal of Empirical Finance, 2024, vol. 78, issue C

Abstract: The leverage effect hypothesis of Black (1976) and Christie (1982) posits that time-series variation in debt causes an inverse relation between stock return volatility and stock returns. Hasanhodzic and Lo (2019) test this hypothesis in a novel sample of firms with no debt and yet they still find an inverse relation, motivating them to espouse volatility feedback as an alternative. Under standard assumptions governing the risk-return relation from the asset pricing literature, I explain why the stock returns of all-equity-financed firms will still have leverage effects on par with those of debt-financed firms and why the absence of debt at the firm level has no bearing on the leverage and volatility feedback hypotheses.

Keywords: Leverage effect; Volatility feedback effect; All-equity-financed firms (search for similar items in EconPapers)
JEL-codes: C12 C32 G11 G19 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539824000513
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:78:y:2024:i:c:s0927539824000513

DOI: 10.1016/j.jempfin.2024.101516

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().