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Leverage vs. Feedback: Which Effect Drives the Equity Market during Stress Periods?

Annals of economics and statistics, 2015-12, Vol.119/120 (119/120), p.269-288 [Peer Reviewed Journal]

ANNALS OF ECONOMICS AND STATISTICS ;Distributed under a Creative Commons Attribution 4.0 International License ;ISSN: 2115-4430 ;EISSN: 1968-3863 ;DOI: 10.15609/annaeconstat2009.119-120.269

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  • Title:
    Leverage vs. Feedback: Which Effect Drives the Equity Market during Stress Periods?
  • Author: Aboura, Sofiane
  • Subjects: Economics and Finance ; FEATURE ARTICLES ; Financial leverage ; Humanities and Social Sciences ; Price volatility ; Stock market indices ; Stock markets ; Stock prices
  • Is Part Of: Annals of economics and statistics, 2015-12, Vol.119/120 (119/120), p.269-288
  • Description: Asymmetric volatility occupies a central role in the risk-return relation. However, this asymmetry has not been examined during stress periods. This article fills this gap by studying this relation at the tail distribution level with an empirical test on the French market from the creation of the implied volatility index in October 1997 until January 2013. Using a complete set of econometrical analysis before applying the multivariate extreme value theory, this article shows that the asymptotic dependence occurs only for the crash scenario in which the feedback effect dominates the leverage effect. This result has implications on the pricing and hedging of options contracts. JEL: C4, G13, G32. / KEY WORDS: Risk Management, Volatility, Extreme Value Theory, Leverage Effect, Feedback Effect.
  • Publisher: GENES
  • Language: English
  • Identifier: ISSN: 2115-4430
    EISSN: 1968-3863
    DOI: 10.15609/annaeconstat2009.119-120.269
  • Source: Alma/SFX Local Collection
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