Measuring volatility persistence in leveraged loan markets in the presence of structural breaks
Authors
Luis A. Gil-Alana
Emmanuel Joel Aikins Abakah
Emmanuel Kwesi Arthur
Aviral KumarTiwari
Type
Article
Journal
International Review of Economics & Finance
Pages
141-152
Date
25-11-2021
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.