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Stochastic volatility and leverage: Application to a panel of S&P500 stocks

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  • Ozturk, Serda Selin
  • Richard, Jean-Francois

Abstract

We estimate stochastic volatility leverage models for a panel of stock returns for 24 S&P 500 firms from six industries. News are measured as differences between daily return and a monthly moving average of past returns. We estimate the models by maximum likelihood using an Efficient Importance Sampling method which produces numerically highly accurate estimates of the likelihood and related test-statistics. We find significant leverage effects for all 24 stocks. These effects are fairly consistent within each industry but there are significant differences across two groups of industries. Our models produce significant improvement in volatility predictability.

Suggested Citation

  • Ozturk, Serda Selin & Richard, Jean-Francois, 2015. "Stochastic volatility and leverage: Application to a panel of S&P500 stocks," Finance Research Letters, Elsevier, vol. 12(C), pages 67-76.
    • Handle: RePEc:eee:finlet:v:12:y:2015:i:c:p:67-76
    DOI: 10.1016/j.frl.2014.11.006
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    More about this item

    Keywords

    Stochastic volatility; Leverage; Importance sampling;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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