A dynamic leverage stochastic volatility model. Issue 1 (2nd January 2023)

• Record Type: Journal Article
• Authors: Nguyen, Hoang; Nguyen, Trong-Nghia; Tran, Minh-Ngoc
• Is Part Of: Applied economics letters. Volume 30:Issue 1(2023)
• Page Start: 97
• Page End: 102
• Publication Date: 2023-01-02
• Subjects: Dynamic leverage -- GAS -- stochastic volatility (SV); C59 -- C11; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2021.1983127
• Languages: English
• ISSNs: 1350-4851

Abstract

ABSTRACT: Stock returns are considered as a convolution of two random processes that are the return innovation and volatility innovation. The correlation of these two processes tends to be negative, which is the so-called leverage effect. In this study, we propose a dynamic leverage stochastic volatility (DLSV) model where the correlation structure between the return innovation and the volatility innovation is assumed to follow a generalized autoregressive score (GAS) process. We find that the leverage effect is reinforced in the market downturn period and weakened in the market upturn period.