Measuring volatility persistence in leveraged loan markets in the presence of structural breaks

Emmanuel Joel Aikins Abakah, Luis A. Gil-Alana, Emmanuel Kwesi Arthur, Aviral Kumar Tiwari

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

Abstract

This paper examines volatility persistence in leverage loan market price series for Australia, Canada, Europe, Japan, Singapore, UK and USA in the presence of structural breaks. To the best of our knowledge, this is the first empirical study to examine volatility persistence in the leveraged loan markets. To this end, using fractional integration methods, the results indicate that both absolute and squared returns display long memory features, with orders of integration confirming the long memory hypothesis. However, after accounting for structural breaks, we find a reduction in the degree of persistence in the leveraged loan market. The evidence of persistence in volatility implies that market participants who want to make gains across trading scales need to factor the persistence properties of leveraged loan price series in their valuation and forecasting models since that will help improve long-term volatility market forecasts and optimal hedging decisions.

Original languageEnglish
Pages (from-to)141-152
Number of pages12
JournalInternational Review of Economics and Finance
Volume78
DOIs
Publication statusPublished - Mar 2022
Externally publishedYes

Keywords

  • Fractional integration
  • Leverage loan indices
  • Persistence
  • Volatility

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