Open Access: The price-leverage covariation as a measure of the response of the leverage effect to price and volatility changes

Each week, we select a recently published Open Access article to feature. This week’s article comes from Applied Stochastic Models in Business and Industry and examines price-leverage covariation.

The article’s abstract is given below, with the full article available to read here.

Toscano, GThe price-leverage covariation as a measure of the response of the leverage effect to price and volatility changesAppl Stochastic Models Bus Ind20221– 15. doi:10.1002/asmb.2672

We study the sensitivity of the leverage effect to changes of the volatility and the price, showing the existence of an analytical link between the latter and the price-leverage covariation in settings with, respectively, stochastic and level-dependent volatility. From the financial standpoint, the results we obtain allow for the interpretation of the price-leverage covariation as a gauge of the responsiveness of the leverage effect to price and volatility changes. The empirical study of S&P500 high-frequency prices over the period March 2018–April 2018, carried out by means of nonparametric Fourier estimators, supports this interpretation of the role of the price-leverage covariation.

 
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