The dynamic interaction between volatility and returns in the US stock market using leveraged bootstrap simulations

Abdulnasser Hatemi-J and Manuchehr Irandoust

Research in International Business and Finance, 2011, vol. 25, issue 3, 329-334

Abstract: One of the most important stylized facts in finance is that stock index returns are inversely related to volatility. The theoretical rationale behind the proposition is still controversial. The causal relationship between returns and volatility is investigated in the US stock market over the period 2004-2009 using daily data. We apply a bootstrap test with leveraged adjustments that is robust to non-normality and ARCH. We find that the volatility causes returns negatively and returns cause volatility positively. The policy implications of our findings are discussed in the main text.

Keywords: Volatility; Returns; Causality; Leveraged; bootstrapping (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:25:y:2011:i:3:p:329-334

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