Leverage and Asymmetric Volatility: The Firm Level Evidence

Abstract

The relative statistical and economic signi…cance of the leverage and feedback e¤ects on …rm level equity volatility is still an open issue in the …nance literature. We provide a dynamic framework to investigate both e¤ects simultaneously. An important feature of our methodology is that we allow leverage, volatility and risk premia to in ‡uence each other over time. Using the intersection of all …rms in CRSP and COMPUSTAT from 1971 to 2005, we perform our analysis using a Panel Vector Autoregression (PVAR) model. We …nd a much larger leverage e¤ect than reported in Christie (1982). Interestingly, we also …nd that the leverage e¤ect accumulates over time, rendering it up to …ve times larger than a static model would predict. JEL Classi…cation: C33

A High‐Frequency Investigation of the Interaction between Volatility and DAX Returns

“…1 1 This statement holds although new evidence suggests that the firm level effect might be stronger than previous work has documented (see Ericsson et al ., 2007; Chelley‐Steeley and Steeley, 2005). …”

Asymmetric Attention and Volatility Asymmetry

“…Later studies (Schwert 1989, Bekaert & Wu 2000, Figlewski & Wang 2001, Talpsepp & Rieger 2010, however, did not find strong relations between the volatility asymmetry and the level of financial leverage. More recently, Daouk & Ng (2011) show, using a new unlevering approach, that the effect of leverage might have been previously underestimated, while Ericsson, et al (2016) argue that the effect of leverage accumulates over time. Evidence in Hens & Steude (2009) and Hasanhodzic & Lo (2011), however, shows that volatility asymmetry even exists for assets with zero leverage, clearly demonstrating that leverage cannot be the only reason for asymmetric volatility.…”

Alavancagem financeira, estrutura patrimonial e a volatilidade dos ativos negociados na B3

“…Se o custo do endividamento for menor que o retorno produzido pela aplicação do capital, o grau de alavancagem financeira será maior que 1, indicando que é financeiramente benéfico se endividar. Choi e Richardson (2016) eEricsson et al (2016) encontraram efeitos significativos da alavancagem financeira com relação à volatilidade.Completando os índices financeiros para a análise do patrimônio, tem-se a imobilização do patrimônio líquido dado pela razão entre o ativo permanente e o patrimônio líquido. Esse indicador possui como objetivo indicar a quantia do patrimônio líquido que está aplicada no ativo permanente, conforme se apresenta na quarta linha da Tabela 1.…”