Testing for leverage effects in the returns of US equities

Christophe Chorro (), Dominique Guegan (), Florian Ielpo and Hanjarivo Lalaharison
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Christophe Chorro: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Dominique Guegan: UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - UP1 - Université Paris 1 Panthéon-Sorbonne, University of Ca’ Foscari [Venice, Italy]

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This article questions the empirical usefulness of leverage effects to forecast the dynamics of equity returns. In sample, we consistently find a significant but limited contribution of leverage effects over the past 25 years of S&P 500 returns. From an out-of-sample forecasting perspective and using a variety of different models, we find no statistical or economical value in using leverage effects, provided that an asymmetric and fat-tailed conditional distribution is used. This conclusion holds both at the index level and for 70% of the individual stocks constituents of the equity index.

Keywords: S&P 500; Leverage effect; Generalized hyperbolic distributions; Mixture of Gaussian distributions; GARCH; Asymmetry (search for similar items in EconPapers)
Date: 2018-09
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Published in Journal of Empirical Finance, 2018, 48, pp.290-306. ⟨10.1016/j.jempfin.2018.07.008⟩

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Related works:
Journal Article: Testing for leverage effects in the returns of US equities (2018)
Working Paper: Testing for Leverage Effects in the Returns of US Equities (2017)
Working Paper: Testing for Leverage Effects in the Returns of US Equities (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-01917590

DOI: 10.1016/j.jempfin.2018.07.008

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