Volatility clustering, leverage effects, and jump dynamics in the US and emerging Asian equity markets

Abstract

This paper proposes asymmetric GARCH-Jump models that synthesize autoregressive jump intensities and volatility feedback in the jump component. Our results indicate that these models provide a better fit for the dynamics of the equity returns in the US and emerging Asian markets, irrespective whether the volatility feedback is generated through a common GARCH multiplier or a separate measure of volatility in the jump intensity function. We also find that they can capture several distinguishing features of the return dynamics in emerging markets, such as, more volatility persistence, less leverage effects, fatter tails, and greater contribution and variability of the jump component. 1 Abstract This paper proposes asymmetric GARCH-Jump models that synthesize autoregressive jump intensities and volatility feedback in the jump component. Our results indicate that these models provide a better fit for the dynamics of the equity returns in the US and emerging Asian markets, irrespective whether the volatility feedback is generated through a common GARCH multiplier or a separate measure of volatility in the jump intensity function.We also find that they can capture several distinguishing features of the return dynamics in emerging markets, such as, more volatility persistence, less leverage effects, fatter tails, and greater contribution and variability of the jump component.2

EMU equity markets' return variance and spillover effects from the short-term interest rate

“…This implies that the volatility is less persistent during the bear period. This result is similar to the report from Friedman and Libson (1989) and Daal et al (2007). Friedman & Laibson (1989) apply a modified ARCH and GARCH model that allow for jumps and divide their sample into ordinary and unusual returns period.…”

“…They find that the volatility of ordinary returns displays persistence but the volatility of the unusual price movements are less persistent. Daal et al (2007) find the same pattern with a GARCH model allowing for jumps and asymmetry.…”

Detecting and modelling the jump risk of CO2emission allowances and their impact on the valuation of option on futures contracts

“…To facilitate the investigation of the jump effect on the returns of CO 2 emission allowances, we extend the work of Chan and Maheu (2002), Maheu and McCurdy (2004), and Daal et al (2007) to specify the time-varying conditional intensity parameter (λ t ) as an ARMA form, which is…”

“…However, most of the existing literature explores the jump risk for pricing options with equity returns (Merton 1976, Jorion 1988, Chan and Maheu 2002, Kou 2002, Maheu and McCurdy 2004, Duan et al 2006, Daal et al 2007. In regard to the emission allowance price, the above studies have not introduced jumps in their modelling with the exception of Daskalakis et al (2009) and Borovkov et al (2011).…”

Analyzing Jump Risk and its Contagious Effect of Stock Asset in Jump-GARCH Model with Threshold and Variable Intensity

“…Maheu and Mccurdy(2004) further discusses the effects of good, bad, normal and unusual news on the individual stock. Daal et al (2007) takes previous volatility of market index into model as state-variable to study its effect on the present jump change in the rate of return of market index.…”