Department of Economics and Business Economics

Pricing Volatility of Stock Returns with Volatile and Persistent Components

Research output: Working paperResearch

  • Jie Zhu, Denmark
  • School of Economics and Management
In this paper a two-component volatility model based on the component's first
moment is introduced to describe the dynamic of speculative return volatility. The two
components capture the volatile and persistent part of volatility respectively. Then the
model is applied to 10 Asia-Pacific stock markets. Their in-mean effects on return are
also tested. The empirical results show that the persistent component accounts much
more for volatility dynamic process than the volatile component. However the volatile
component is found to be a significant pricing factor of asset returns for most markets,
a positive or risk-premium effect exists between return and the volatile component,
yet the persistent component is not significantly priced for return dynamic process.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages50
Publication statusPublished - 2008

    Research areas

  • Risk; Return; In-mean effect; Volatile; Persistent; Innovations

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ID: 10689485