Title: On the frequency of transmission of market volatility to individual stocks: A double asymmetric GARCH--MIDAS approach
Authors: Giampiero Gallo - NYU in Florence (Italy) [presenting]
Alessandra Amendola - University of Salerno (Italy)
Vincenzo Candila - University of Salerno (Italy)
Abstract: Volatility in financial markets has both low and high--frequency components which determine its dynamic evolution. Previous modelling efforts in the GARCH context (e.g. the spline--GARCH) were aimed at estimating the low-frequency component as a smooth function of time around which short-term dynamics evolve. Alternatively, recent literature has introduced the possibility of considering data sampled at different frequencies to estimate the influence of macrovariables on volatility. We use a recently developed model, labelled double asymmetric GARCH MIDAS model, where variations in a market volatility variable (in our context, VIX) are observed both at the daily and the monthly level and represent different channels through which market volatility can influence individual stocks. We want to convey the idea that such variations (separately) affect the short-- and long--run components, possibly having a separate impact according to their sign. The model is estimated on a panel of stocks chosen by their sizable capitalization across different sectors.