Firm size and volatility analysis in the Spanish stock market

Helena Chuliá and Hipolit Torro

The European Journal of Finance, 2011, vol. 17, issue 8, 695-715

Abstract: Using Spanish stock market data, this paper examines volatility spillovers between large and small firms and their impact on expected returns. By using a conditional capital asset pricing model (CAPM) with an asymmetric multivariate GARCH-M covariance structure, it is shown that there exist bidirectional volatility spillovers between both types of companies, especially after bad news. After estimating the model, a positive and significant price of risk is obtained. This result is consistent with the volatility feedback effect, one of the most popular explanations of the asymmetric volatility phenomenon, and explains why risk premiums are much more sensitive to negative return shocks coming from the whole market or other related markets.

Keywords: volatility spillovers; GARCH; large and small firms; risk premium (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1080/1351847X.2011.554286

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