  With the daily and minutely data of the German DAX and Chinese indices, we
investigate how the return-volatility correlation originates in financial
dynamics. Based on a retarded volatility model, we may eliminate or generate
the return-volatility correlation of the time series, while other
characteristics, such as the probability distribution of returns and long-range
time-correlation of volatilities etc., remain essentially unchanged. This
suggests that the leverage effect or anti-leverage effect in financial markets
arises from a kind of feedback return-volatility interactions, rather than the
long-range time-correlation of volatilities and asymmetric probability
distribution of returns. Further, we show that large volatilities dominate the
return-volatility correlation in financial dynamics.
