Why Does Bad News Increase Volatility and Decrease Leverage?

Why Does Bad News Increase Volatility and Decrease Leverage?
The literature on leverage until now shows how an increase in volatility reduces leverage. However, in order to explain pro-cyclical leverage it assumes that bad news increases volatility. This paper suggests a reason why bad news is more often than not associated with higher future volatility. We show that, in a model with endogenous leverage... READ MORE...

Publication date: September 2010
ISBN 9781455205370
$18.00

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