A Permanent and Transitory Component of Individual Stock Return Volatility

다국어 초록 (Multilingual Abstract)

This study considers component GARCH model to decompose the stock return volatility into permanent and transitory component and compute the firm’s the ratio of permanent component of volatility to total volatility. With this ratio as a dependent variable and the firm-characteristic variables as explanatory variables, we use the linear multivariate regression analysis to capture the features of 100 constituent and outside firms of the S&P 500 index respectively in the US market between April 1998 and April 2002. This study discovers that size and the book-tomarket ratio appear to be important factors explaining the firm’s ratio of permanent component of volatility to total volatility. We find that the firm size is negatively related while the book-to-market ratio of the firm is positively related to the permanent component of volatility out of total volatility of the firm’s stock return.

목차 (Table of Contents)

• Abstract
• I. Introduction
• II. Literature
• Component-GARCH Model
• III. Data
• Data
• Market condition during the sample period
• IV. Methodology
• Component GARCH estimation
• Calculation of the ratio of permanent component variance to total variance
• Specification
• V. Results
• Component GARCH Estimation Result
• Ratio of permanent component conditional variance to total conditional variance
• Regression Result
• VI. Summary and conclusion
• Reference