THE LEVERAGE EFFECT ON THE VALUE PREMIUM VOLATILITY: FROM AN INTERNATIONAL PERSPECTIVE

Abstract

This paper investigates the leverage effect on the value premium volatility using GARCH and TARCH models utilizing a unique dataset, for twenty nine countries. The findings show that value premium returns are bigger in developed than in developing countries and vary from negative values in some countries to positive in other countries, suggesting that different markets may need different long-run investment strategies. Moreover, we show persistence of a finite unconditional variance that appears strong in developed countries but less significant in developing countries. Finally, leverage appears to have asymmetric effects on the value premium in eight countries including: USA, Canada, Denmark, Finland, New Zealand, Sweden, the UK and Poland.