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Time-varying volatility asymmetry: a conditioned HAR-RV(CJ) EGARCH-M model

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  • Özcan Ceylan

Abstract

ABSTRACT I develop a novel model that accounts for volatility feedback and leverage effects, effectively incorporating signed continuous and jump components of the realized variance into the variance specification through a heterogeneous autoregressive forecasting model. I then condition the variance specification on the lagged realized variance and the risk aversion to analyze eventual state-dependent variations in the volatility asymmetry. I find that the volatility asymmetry is clearly more pronounced in periods of market stress. In addition, I reveal a further asymmetry in the asymmetric reaction patterns of the volatility to good and bad news: investors become more sensitive to bad news in market downturns. ;

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  • Özcan Ceylan, . "Time-varying volatility asymmetry: a conditioned HAR-RV(CJ) EGARCH-M model," Journal of Risk, Journal of Risk.
    • Handle: RePEc:rsk:journ4:2385597
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