TY  - JOUR
AU  - Bekaert,Geert
AU  - Wu,Guojun
TI  - Asymmetric Volatility and Risk in Equity Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6022
PY  - 1997
Y2  - April 1997
UR  - http://www.nber.org/papers/w6022
L1  - http://www.nber.org/papers/w6022.pdf
N1  - Author contact info:
Geert Bekaert
Graduate School of Business
Columbia University
3022 Broadway, 411 Uris Hall
New York, NY 10027
Tel: 212/854-9156
Fax: 212/662-8474
E-Mail: gb241@columbia.edu

Guojun Wu
Bauer College of Business
University of Houston
Houston, TX 77204
Tel: (713) 743-4813
E-Mail: gwu2@uh.edu
AB  - It appears that volatility in equity markets is asymmetric: returns and conditional volatility are negatively correlated.  We provide a unified framework to simultaneously investigate asymmetric volatility at the firm and the market level and to examine two potential explanations of the asymmetry: leverage effects and time-varying risk premiums.  Our empirical application uses the market portfolio and portfolios with different leverage constructed from Nikkei 225 stocks, extending the empirical evidence on asymmetry to Japanese stocks.  Although volatility asymmetry is present and significant at the market and the portfolio levels, its source differs across portfolios. We find that it is important to include leverage ratios in the volatility dynamics but that their economic effects are mostly dwarfed by the volatility feedback mechanism.  Volatility feedback is enhanced by a phenomenon that we term covariance asymmetry: conditional covariances with the market increase only significantly following negative market news.  We do not find significant asymmetries in conditional betas.
ER  -