The literature documents that low stock returns are associated with increased volatility, but two competing explanations have proved di±cult to disentangle. A negative return increases leverage, making equity value more volatile. However, an increase in volatility that persists causes stock prices to drop. We follow Bekaert and Wu (2000) in controlling for leverage, but distinguish between volatility regimes that persist from less persistent changes
using GARCH. For post World War II returns on the value-weighted portfolio of all NYSE stocks, we find changes in volatility regime are re°ected in stock returns, but not GARCH.
Key words: Asymmetric Volatility, Volatility Feedback, Leverage E®ect, Regime Switching,
GARCH, Time-varying Transition Probabilities
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[2005년 제 2차] Why Are Stock Returns and Volatility Negatively Cor
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2005-06-03