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Good News, Bad News, Volatility, and Betas
Author(s) -
BRAUN PHILLIP A.,
NELSON DANIEL B.,
SUNIER ALAIN M.
Publication year - 1995
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1995.tb05189.x
Subject(s) - volatility (finance) , econometrics , economics , leverage effect , portfolio , heteroscedasticity , market portfolio , financial economics , autoregressive conditional heteroskedasticity , stock market , leverage (statistics) , mathematics , statistics , paleontology , horse , biology
We investigate the conditional covariances of stock returns using bivariate exponential ARCH (EGARCH) models. These models allow market volatility, portfolio‐specific volatility, and beta to respond asymmetrically to positive and negative market and portfolio returns, i.e., “leverage” effects. Using monthly data, we find strong evidence of conditional heteroskedasticity in both market and non‐market components of returns, and weaker evidence of time‐varying conditional betas. Surprisingly while leverage effects appear strong in the market component of volatility, they are absent in conditional betas and weak and/or inconsistent in nonmarket sources of risk.