TY - JOUR
T1 - Asymmetric covariance, volatility, and the effect of news
AU - Dean, Warren G.
AU - Faff, Robert W.
PY - 2004
Y1 - 2004
N2 - We propose that covariance (rather than beta) asymmetry provides a superior framework for examining issues related to changing risk premiums. Accordingly, we investigate whether the conditional covariance between stock and market returns is asymmetric in response to good and bad news. Our model of conditional covariance accommodates both the sign and magnitude of return innovations, and we find significant covariance asymmetry that can explain, at least in part, the volatility feedback of stock returns. Our findings are consistent across firm size, firm leverage, and temporal and cross-sectional aggregations.
AB - We propose that covariance (rather than beta) asymmetry provides a superior framework for examining issues related to changing risk premiums. Accordingly, we investigate whether the conditional covariance between stock and market returns is asymmetric in response to good and bad news. Our model of conditional covariance accommodates both the sign and magnitude of return innovations, and we find significant covariance asymmetry that can explain, at least in part, the volatility feedback of stock returns. Our findings are consistent across firm size, firm leverage, and temporal and cross-sectional aggregations.
UR - http://www.scopus.com/inward/record.url?scp=4444244252&partnerID=8YFLogxK
U2 - 10.1111/j.1475-6803.2004.00097.x
DO - 10.1111/j.1475-6803.2004.00097.x
M3 - Article
AN - SCOPUS:4444244252
SN - 0270-2592
VL - 27
SP - 393
EP - 413
JO - Journal of Financial Research
JF - Journal of Financial Research
IS - 3
ER -