Pricing Volatility of Stock Returns With Volatile and Persistent Components
39 Pages Posted: 23 Apr 2007
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Pricing Volatility of Stock Returns With Volatile and Persistent Components
Pricing Volatility of Stock Returns with Volatile and Persistent Components
Date Written: April 23, 2007
Abstract
In this paper a two-component model is suggested to describe the dynamics of speculative return volatility. The two components capture the volatile and persistent part of volatility respectively. The model is then implemented to ten Asian-Pacific stock markets. The empirical results show that the persistent component accounts much more for volatility dynamic process than the volatile component. However the volatile component is found to be a significant price factor in asset returns for all markets, yet the persistent component is not significantly priced for the return generating process.
Keywords: Risk-Return Relation, Component GARCH-M, Volatile and Persistent
JEL Classification: C14, G12, G15
Suggested Citation: Suggested Citation
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