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Asymmetric Predictability of Conditional Variances

Jennifer Conrad1; Mustafa N. Gultekin; Gautam Kaul2

1 University of North Carolina at Chapel Hill · 2 University of Michigan–Ann Arbor

Review of Financial Studies 1991

We show that there is an asymmetry in the predictability of the volatilities of large versus small firms. Using both univariate and multivariate ARMA–GARCH-M parameterizations, we find that volatility surprises to large market value firms are important to the future dynamics of their own returns as well as the returns of smaller firms. Conversely, however, shocks to smaller firms have no impact on the behavior of either the mean or the variance of the returns of larger capitalization companies.

DOI
10.1093/rfs/4.4.597
Volume
4 (4)
Pages
597-622
Language
en
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