centre for microdata methods and practice

ESRC centre

cemmap is an ESRC research centre

ESRC

Keep in touch

Subscribe to cemmap news

A nonparametric test of the leverage hypothesis

Authors: Oliver Linton , Yoon-Jae Whang and Yu-Min Yen
Date: 13 September 2012
Type: cemmap Working Paper, CWP24/12
DOI: 10.1920/wp.cem.2012.2412

Abstract

The so-called leverage hypothesis is that negative shocks to prices/returns aff ect volatility more than equal positive shocks. Whether this is attributable to changing financial leverage is still subject to dispute but the terminology is in wide use. There are many tests of the leverage hypothesis using discrete time data. These typically involve fitting of a general parametric or semiparametric model to conditional volatility and then testing the implied restrictions on parameters or curves. We propose an alternative way of testing this hypothesis using realised volatility as an alternative direct nonparametric measure. Our null hypothesis is of conditional distributional dominance and so is much stronger than the usual hypotheses considered previously. We implement our test on a number of stock return datasets using intraday data over a long span. We find powerful evidence in favour of our hypothesis. Download full version
New version:
Oliver Linton, Yoon-Jae Whang and Yu-Min Yen July 2013, A nonparametric test of a strong leverage hypothesis, cemmap Working Paper, CWP28/13

Publications feeds

Subscribe to cemmap working papers via RSS

Search cemmap

Search by title, topic or name.

Contact cemmap

Centre for Microdata Methods and Practice

How to find us

Tel: +44 (0)20 7291 4800

E-mail us