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Persistence in firm’s asset and equity volatility

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  • González-Pla, Francisco
  • Lovreta, Lidija

Abstract

In this paper we study the persistence properties of firm’s asset and equity volatility for a sample of non-financial iTraxx Europe companies during the 2004–2016 period. We estimate the degree of persistence on a firm-specific basis using the FIGARCH model and find strong evidence of long-memory in the conditional variance of both firm’s asset and equity returns. The estimated degree of persistence of firm’s asset and equity volatility is lower than 0.5 for the vast majority of companies considered. We find the persistence of equity volatility to be slightly higher than the persistence of firm’s asset volatility. However, this difference is not statistically significant. Our findings show that the persistence of both firm’s asset and equity volatility is positively related to leverage and negatively related to relative idiosyncratic volatility. A DFA analysis of absolute returns confirms the long-memory behavior of both volatility series.

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  • González-Pla, Francisco & Lovreta, Lidija, 2019. "Persistence in firm’s asset and equity volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 535(C).
    • Handle: RePEc:eee:phsmap:v:535:y:2019:i:c:s037843711931310x
    DOI: 10.1016/j.physa.2019.122265
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    1. Lahmiri, Salim & Bekiros, Stelios, 2021. "The effect of COVID-19 on long memory in returns and volatility of cryptocurrency and stock markets," Chaos, Solitons & Fractals, Elsevier, vol. 151(C).
    2. González-Pla, Francisco & Lovreta, Lidija, 2022. "Modeling and forecasting firm-specific volatility: The role of asymmetry and long-memory," Finance Research Letters, Elsevier, vol. 48(C).

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    More about this item

    Keywords

    Long-memory; FIGARCH; Structural credit risk models; Firm’s asset volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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