Persistence in firm's asset and equity volatility

Francisco González-Pla, Lidija Lovreta

    Research output: Contribution to journalArticleResearch

    1 Citation (Scopus)

    Abstract

    © 2019 Elsevier B.V. In this paper we study the persistence properties of firm's asset and equity volatility for a sample of non-financial iTraxx Europe companies during the 2004–2016 period. We estimate the degree of persistence on a firm-specific basis using the FIGARCH model and find strong evidence of long-memory in the conditional variance of both firm's asset and equity returns. The estimated degree of persistence of firm's asset and equity volatility is lower than 0.5 for the vast majority of companies considered. We find the persistence of equity volatility to be slightly higher than the persistence of firm's asset volatility. However, this difference is not statistically significant. Our findings show that the persistence of both firm's asset and equity volatility is positively related to leverage and negatively related to relative idiosyncratic volatility. A DFA analysis of absolute returns confirms the long-memory behavior of both volatility series.
    Original languageEnglish
    Article number122265
    JournalPhysica A: Statistical Mechanics and its Applications
    Volume535
    DOIs
    Publication statusPublished - 1 Dec 2019

    Keywords

    • FIGARCH
    • Firm's asset volatility
    • Long-memory
    • Structural credit risk models

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