© 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.
|Journal||Physica A: Statistical Mechanics and its Applications|
|Publication status||Published - 1 Dec 2019|
- Firm's asset volatility
- Structural credit risk models