Testing for Leverage Effects in the Returns of US Equities

This article questions the empirical usefulness of leverage effects to describe the dynamics of equity returns. Relying on both in and out of sample tests we consistently find a weak contribution of leverage effects over the past 25 years of S&P 500 returns. The skewness in the conditional distribution of the returns's time series models in found to explain most of the returns' distribution's asymmetry. This conclusion holds both at the index level and for 70% of the individual stocks constituents of the equity index