Asymmetric covariance, volatility, and the effect of news

Warren G. Dean, Robert W. Faff

Research output: Contribution to journalArticleResearchpeer-review

8 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)393-413
Number of pages21
JournalJournal of Financial Research
Issue number3
Publication statusPublished - 2004
Externally publishedYes


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