Modelling the asymmetry of stock market volatility

Ólan Henry

Applied Financial Economics, 1998, vol. 8, issue 2, 145-153

Abstract: Recent studies suggest that a negative shock to stock prices will generate more volatility than a positive shock of equal magnitude. This paper uses daily data from the Hong Kong Stock Exchange to illustrate the nature of stock market volatility. Regression-based tests for integration in variance are applied, providing contrasting results to the usual test based on the Wald statistic. A partially non-parametric model of the relationship between news and volatility is estimated and used in conjunction with tests for the sensitivity to both the size and sign of a shock as a metric to judge various candidate characterizations of the underlying data generating process.

Date: 1998
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Working Paper: Modelling the Assymetry of Stock Market Volatility (1995)
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DOI: 10.1080/096031098333122

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