Structural GARCH: The Volatility-Leverage Connection

• 成果类型: Article
• 署名作者: Engle, Robert F.; Siriwardane, Emil N.
• 署名单位: New York University; Harvard University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhx099
• 发表日期: 2018
• 页码: 449
• 关键词: stochastic volatility; conditional heteroskedasticity; stock returns; RISK; CONNECTEDNESS; variance; options; bond

摘要

In the aftermath of the financial crisis, institutions have been asked to reduce leverage in order to reduce risk. To address the effectiveness of this measure, we build a model of equity volatility that accounts for leverage. Our approach blends Merton's insights on capital structure with traditional time-series models of volatility. We estimate that precautionary capital needs for the entire financial sector reached $2 trillion during the crisis. We also investigate the long-standing observation that equity volatility asymmetrically responds to positive and negative news. Volatility asymmetry is mostly explained by exposure to the aggregate market, not a mechanical leverage effect.