Time-Varying Volatility Asymmetry: A Conditioned HAR-RV(CJ) EGARCH-M Model
No 12-4, GIAM Working Papers from Galatasaray University Economic Research Center
Based on the recent developments in the high-frequency econometrics and asymmetric GARCH modeling literature, I develop a novel model that accounts for the volatility feedback and leverage effects, effectively incorporating signed continuous and jump components of the realized variance in the variance specification through an HAR forecasting model. I then condition the variance specification on the lagged realized variance and the risk aversion (that is proxied by the variance risk premium level) to analyze the eventual state-dependent variations in the volatility asymmetry. I find that the volatility asymmetry is clearly more pronounced in the periods of market stress marked by high levels of volatility and risk aversion. In addition, I reveal a further asymmetry in the asymmetric reaction patterns of the volatility to good and bad news: while the market moves through the periods of higher volatility and risk aversion, the impact of a bad news increases much more heavily than that of good news pointing to the fact that the investors become more sensible to bad news in market downturns.
Keywords: Time-varying volatility asymmetry; High-frequency econometrics; EGARCH-M; HAR models; Volatility components; Variance risk premium (search for similar items in EconPapers)
JEL-codes: C13 C14 C32 C58 G12 (search for similar items in EconPapers)
Pages: 25 pages
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:ris:giamwp:2012_004
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