Application of the Concept of Dissonance to Explain the Phenomenon of Return-Volatility Relationship

Debasis Bagchi

The IUP Journal of Applied Finance, 2014, vol. 20, issue 2, 5-17

Abstract: In this paper, we attempt to provide a behavioral explanation to the observed asymmetric return-volatility relationship. In some cases, the affect heuristic, mental accounting and extrapolation bias may not be adequate to explain return-volatility dynamics. We build up three hypotheses to establish whether return-volatility relationship is influenced by cognitive dissonance. We observe that both positive and negative relationships exist for return-volatility dynamics. We show that cognitive dissonance is responsible for return-volatility relationship and which can explain their observed negative and positive relationships. Our third hypothesis relates to significance of volatility feedback theory. We find that it is rejected, which confirms that volatility feedback theory is not always tenable for explaining asymmetric return-volatility relationship.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:icf:icfjaf:v:20:y:2014:i:2:p:5-17

Access Statistics for this article

More articles in The IUP Journal of Applied Finance from IUP Publications
Bibliographic data for series maintained by G R K Murty ().