TY - JOUR
T1 - Measuring volatility persistence in leveraged loan markets in the presence of structural breaks
AU - Aikins Abakah, Emmanuel Joel
AU - Gil-Alana, Luis A.
AU - Arthur, Emmanuel Kwesi
AU - Tiwari, Aviral Kumar
N1 - Publisher Copyright:
© 2021 The Authors
PY - 2022/3
Y1 - 2022/3
N2 - 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.
AB - 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.
KW - Fractional integration
KW - Leverage loan indices
KW - Persistence
KW - Volatility
UR - http://www.scopus.com/inward/record.url?scp=85120624949&partnerID=8YFLogxK
U2 - 10.1016/j.iref.2021.11.016
DO - 10.1016/j.iref.2021.11.016
M3 - Article
AN - SCOPUS:85120624949
SN - 1059-0560
VL - 78
SP - 141
EP - 152
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
ER -