Equity Return and Short-Term interest rate volatility: Level effects and asymetric dynamics

Henry, Ólan T., Olekalns, Nilss and Suardi, Sandy (2005). Equity Return and Short-Term interest rate volatility: Level effects and asymetric dynamics. In: Proceedings of the 34th Australian Conference of Economists. ACE05: 34th Australian Conference of Economists, Melbourne, Australia, (1-45). 26-28 September 2005.


Author Henry, Ólan T.
Olekalns, Nilss
Suardi, Sandy
Title of paper Equity Return and Short-Term interest rate volatility: Level effects and asymetric dynamics
Conference name ACE05: 34th Australian Conference of Economists
Conference location Melbourne, Australia
Conference dates 26-28 September 2005
Proceedings title Proceedings of the 34th Australian Conference of Economists
Place of Publication Sydney, Australia
Publisher Economic Society of Australia
Publication Year 2005
Sub-type Fully published paper
ISBN 0734026080
9780734026088
Start page 1
End page 45
Total pages 45
Collection year 2005
Language eng
Formatted Abstract/Summary
Evidence suggests that short-term interest rate volatility peaks with the level of short rates, while equity volatility responds asymmetrically
to positive and negative shocks. We present an LM based test that distinguishes between level effects and asymmetry in volatility which is robust to the presence of unidentified nuisance parameters under the null. There is strong evidence of a level effect and asymmetric response in the relationship between S&P 500 Index returns and 3-month US Treasury Bills. The conditional covariance depends on the level of the short rate which has implications for hedging equity returns against short term interest rate movements.
Subjects E1
340213 Economic Development and Growth
729999 Economic issues not elsewhere classified
Keyword Level Effects
Asymmetry
LM Tests
Davies Problem
Nonlinear Granger Causality
Q-Index Code E1

 
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Created: Thu, 23 Aug 2007, 21:11:57 EST