Abstract:The leverage effect refers to the generally negative correlation between the return of an asset and the changes in its volatility. There is broad agreement in the literature that the effect should be present for theoretical reasons, and it has been consistently found in empirical work. However, a few papers have pointed out a puzzle: the return distributions of many assets do not appear to be affected by the leverage effect. We analyze the determinants of the return distribution and find that the impact of the… Show more
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