The Price-Leverage Covariation as a Measure of the Response of the Leverage Effect To Price and Volatility Changes
2021
We study the sensitivity of the leverage effect to changes in the volatility
and the price, showing the existence of an analytical link between the latter
and the price-leverage covariation in settings with, respectively, stochastic
and level-dependent volatility. From the financial standpoint, the results we
obtain allow for the interpretation of the price-leverage covariation as a gauge
of the responsiveness of the leverage effect to price and volatility changes.
The empirical study of S&P500 high-frequency prices over the period March,
2018-April, 2018, carried out by means of non-parametric Fourier estimators,
supports this interpretation of the role of the price-leverage covariation.
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