Pricing Volatility of Stock Returns With Volatile and Persistent Components

39 Pages Posted: 23 Apr 2007

See all articles by Jie Zhu

Jie Zhu

University of Aarhus - School of Economics and Management; Aarhus University - CREATES

Multiple version iconThere are 2 versions of this paper

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

Zhu, Jie, Pricing Volatility of Stock Returns With Volatile and Persistent Components (April 23, 2007). Available at SSRN: https://ssrn.com/abstract=982088 or http://dx.doi.org/10.2139/ssrn.982088

Jie Zhu (Contact Author)

University of Aarhus - School of Economics and Management ( email )

Building 1323, Room 226
Aarhus, 8000
Denmark
+45-89422138 (Phone)

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

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