A Stochastic Volatility and Leverage: Application to a Panel of S&P Stocks

16 Pages Posted: 6 May 2012

See all articles by Serda Ozturk

Serda Ozturk

Istanbul Bilgi University

Jean-Francois Richard

University of Pittsburgh - Department of Economics

Date Written: May 6, 2012

Abstract

We estimate stochastic volatility leverage models for a panel of stock returns for 24 S&P 500 firms from six industries. News are measured as differences between daily return and a monthly moving average of past returns. We estimate the models by maximum likelihood using an Efficient Importance Sampling method which produces numerically highly accurate estimates of the likelihood and related test-statistics. We find significant leverage effects for all 24 stocks. These effects are fairly consistent within each industry but there are significant differences across two groups of industries. Our models produce significant improvement in volatility predictability.

Keywords: stochastic volatility, leverage, importance

JEL Classification: G170, C150

Suggested Citation

Ozturk, Serda and Richard, Jean-Francois, A Stochastic Volatility and Leverage: Application to a Panel of S&P Stocks (May 6, 2012). Available at SSRN: https://ssrn.com/abstract=2052034 or http://dx.doi.org/10.2139/ssrn.2052034

Serda Ozturk (Contact Author)

Istanbul Bilgi University ( email )

Kustepe, Istanbul, 80310
Turkey

Jean-Francois Richard

University of Pittsburgh - Department of Economics ( email )

4901 Wesley Posvar Hall
230 South Bouquet Street
Pittsburgh, PA 15260
United States
412-648-1750 (Phone)

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