Review of Finance Vol. 17 No. 1 2013
Modeling Market Downside Volatility
open access
Abstract
We propose a new methodology for modeling and estimating time-varying downside risk and upside uncertainty in equity returns and for assessment of risk–return trade-off in financial markets. Using the salient features of the binormal distribution, we explicitly relate downside risk and upside uncertainty to conditional heteroskedasticity and asymmetry through binormal GARCH (BiN-GARCH) model. Based on S&P 500 and international index returns, we find strong empirical support for existence of significant relative downside risk, and robust positive relationship between relative downside risk and conditional mode.
- DOI
- 10.1093/rof/rfr024
- Volume
- 17
- Issue
- 1
- Pages
- 443-481
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref