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Cross-sectional distribution of GARCH coefficients across S&P 500 constituents

David Ardia & Lennart Hoogerheide

Résumé We investigate the time-variation of the cross-sectional distribution of asymmetric GARCH model parameters over the S&P 500 constituents for the period 2000-2012. We find the following results. First, the unconditional variances in the GARCH model obviously show major time-variation, with a high level after the dot-com bubble and the highest peak in the latest financial crisis. Second, in these more volatile periods it is especially the persistence of deviations of volatility from its unconditional mean that increases. Particularly in the latest financial crisis, the estimated models tend to Integrated GARCH models, which can cope with an abrupt regime-shift from low to high volatility levels. Third, the leverage effect tends to be somewhat higher in periods with higher volatility. Our findings are mostly robust across sectors, except for the technology sector, which exhibits a substantially higher volatility after the dot-com bubble. Further, the financial sector shows the highest volatility during the latest financial crisis. Finally, in an analysis of different market capitalizations, we find that small cap stocks have a higher volatility than large cap stocks where the discrepancy between small and large cap stocks increased during the latest financial crisis. Small cap stocks also have a larger conditional kurtosis and a higher leverage effect than mid cap and large cap stocks.
   
Mots-clés GARCH;GJR;equity;leverage effect;S&P 500 universe
   
Citation Ardia, D., & Hoogerheide, L. (2013). Cross-sectional distribution of GARCH coefficients across S&P 500 constituents. Wilmott Magazine, 66, 40-44.
   
Type Article de périodique (Anglais)
Date de publication 2013
Nom du périodique Wilmott Magazine
Volume 66
Pages 40-44
URL http://onlinelibrary.wiley.com/doi/10.1002/wilm.10232/abs...