It is sometimes argued that an increase in stock market volatility raises required stock returns, and thus lowers stock prices. This paper modifies the generalized autoregressive conditionally heteroskedastic (GARCH) model of returns to allow for this volatility feedback effect. The resulting...

Do financial markets properly reflect leverage? Unlike Gomes and Schmid (2010) who examine this question with a structural approach (using long-term monthly stock characteristics), my paper examines it with a quasi-experimental approach (using short-term a discrete event). After a firm has...

Recent empirical evidence suggests that the long-run dependence in financial market volatility is best characterized by a slowly mean-reverting fractionally integrated process. At the same time, much shorter-lived volatility dependencies are typically observed with high-frequency intradaily...

This paper characterizes the volatility in the DM-dollar foreign exchange market using an annual sample of five-minute returns. Our modeling approach explicitly captures the pronounced intraday activity patterns, the strong macroeconomic announcement effects, and the volatility persistence, or...

We examine the reaction of daily bond prices to the release of government macroeconomic news. These news releases are of interest because they are released on periodic, preannounced dates and because they cause substantial bond market volatility. The news component of volatility is not...