An Empirical Study on Volatility Asymmetry and Return Asymmetry

There are certain recent studies that attempt to predict return asymmetry using the bubble theory and the investor - heterogeneity theory. However, their empirical findings are not conclusive. In this thesis, we demonstrate that these economic theories may be useful for predicting volatility asymmetry but not necessarily useful for predicting return asymmetry. We also examine this point by applying the autoregressive conditional density models of Hansen~(1994,
International Economic Review, 705--730) with various
volatility asymmetry specifications to an empirical study of stock index returns, and find that the empirical results are consistent with our viewpoint.