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Rev Fin 1991; 4:597-622
© 1991 the Society for Financial Studies

Article

Asymmetric predictability of conditional variances

J Conrad1, MN Gultekin1 and G Kaul2
1 University of North Carolina at Chapel Hill, Chapel Hill, USA
2 School of Business Administration, The University of Michigan at Ann Arbor, Ann Arbor, MI 48109, USA

Abstract

We show that there is an asymmetry in the predictability of the volatilities of large versus small firms. Using both univariate and multivariate ARMA - GARCH-M parameterziations, we find that volatility surprises to large market value firms are important to the future dynamics of their own returns as well as the returns of small firms. Conversely, however, shocks to smaller firms have no impact on the behavior of either the mean or the variance of the returns of larger capitalization companies.


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