Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 848: Occurrence of long and short term asymmetry in stock market volatilities

Carl Lönnbark ()
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Carl Lönnbark: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: We introduce the notions of short and long term asymmetric effects in volatilities. With short term asymmetry we mean the conventional one, i.e. the asymmetric response of current volatility to the most recent return shocks. However, there may be asymmetries in the way the effect of past return shocks propagate over time as well. We refer to this as long term asymmetry. We propose a model that enables the study of such a feature. In an empirical application using stock market index data we found evidence of the joint presence of short and long term asymmetric effects.

Keywords: Financial econometrics; GARCH; memory; nonlinear; risk prediction; time series

JEL-codes: C22; C51; C58; G15; G17

10 pages, October 3, 2012

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