A dynamic leverage stochastic volatility model

Hoang Nguyen, Trong-Nghia Nguyen () and Minh-Ngoc Tran ()
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Trong-Nghia Nguyen: The University of Sydney Business School, Postal: The University of Sydney Business School, Abercrombie Building H70, Corner Abercrombie Street and, Codrington St, Darlington NSW 2006, Australia., https://www.sydney.edu.au/about-us/governance-and-structure/portfolios/education-portfolio/academic-staff/nghia-nguyen.html
Minh-Ngoc Tran: The University of Sydney Business School, Postal: The University of Sydney Business School, Abercrombie Building H70, Corner Abercrombie Street and, Codrington St, Darlington NSW 2006, Australia.,, https://www.sydney.edu.au/business/about/our-people/academic-staff/minh-ngoc-tran.html

No 2021:14, Working Papers from Örebro University, School of Business

Abstract: Stock returns are considered as a convolution of two random processes that are the return innovation and the volatility innovation. The correlation of these two processes tends to be negative which is the so-called leverage effect. In this study, we propose a dynamic leverage stochastic volatility (DLSV) model where the correlation structure between the return innovation and the volatility innovation is assumed to follow a generalized autoregressive score (GAS) process. We founnd that the leverage effect is reinforced in the market downturn period and weakened in the market upturn period.

Keywords: Dynamic leverage; GAS; stochastic volatility (SV) (search for similar items in EconPapers)
JEL-codes: C11 C52 C58 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2021-05-20
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-isf, nep-ore and nep-rmg
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Journal Article: A dynamic leverage stochastic volatility model (2023)
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