Macroeconomic factors and the asymmetric predictability of conditional variances

Document Type

Article

Publication Date

1-1-1998

Abstract

This paper investigates the predictability of the volatilities of large versus small firms. Using AR-GARCH models we show that there is symmetry in the ability of firms of different market values to predict conditional variances. Specifically, we show that volatility surprises of small (large) firms are important in predicting the conditional variance of large (small) firms. These results are different than those previously reported which indicate that there is an asymmetry in the predictability of the volatilities of large versus small firms. This predictive ability is still present when the equation of conditional variance includes state variables such as the default premium, dividend yield and the term premium. Finally, our results indicate that the pattern of symmetric predictability is present in both pre- and post-war sample periods. © 1998 Blackwell Publishers Ltd.

Identifier

33845426932 (Scopus)

Publication Title

European Financial Management

External Full Text Location

https://doi.org/10.1111/1468-036X.00064

e-ISSN

1468036X

ISSN

13547798

First Page

207

Last Page

230

Issue

2

Volume

4

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