What are returns outside trading hours capturing for volatility of individual stocks?

Xunxiao Wang, Xundi Diao and Yixiang Chen

Applied Economics Letters, 2016, vol. 23, issue 16, 1121-1124

Abstract: This study is the first to harness the negative returns and squared returns outside trading hours, trading volume and leverage effects in an augmented heterogeneous autoregressive model for forecasting volatility of individual stocks. Besides significant leverage effects and trading volume impact, we find that an increase in the negative returns is associated with a decline in volatility, but an increase in the squared returns is associated with a rise in volatility. This new finding suggests that the negative returns and squared returns outside trading hours are capturing additional leverage effects and additional volatilities, respectively. Moreover, the relations display differences amongst various firm categories which arise from firm heterogeneity.

Date: 2016
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DOI: 10.1080/13504851.2015.1042138

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