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Asian Review of Financial Research, Vol., No..
pp.523~551
pp.523~551
A Permanent and Transitory Component of Individual Stock Return Volatility
Hyo-young Lee
Jin-wan Cho
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.
Hyo-young Lee
Jin-wan Cho
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.