Time-Varying Leverage Effects

@inproceedings{Bandi2012TimeVaryingLE,
  title={Time-Varying Leverage Effects},
  author={Federico M. Bandi and Roberto Ren{\`o}},
  year={2012}
}
Vast empirical evidence points to the existence of a negative correlation, named ”leverage effect”, between shocks to variance and shocks to returns. We provide a nonparametric theory of leverage estimation in the context of a continuous-time stochastic volatility model with jumps in returns, jumps in variance, or both. Leverage is defined as a flexible function of the state of the firm, as summarized by the spot variance level. We show that its point-wise functional estimates have asymptotic… CONTINUE READING

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