  Recent studies show that a negative shock in stock prices will generate more
volatility than a positive shock of similar magnitude. The aim of this paper is
to appraise the hypothesis under which the conditional mean and the conditional
variance of stock returns are asymmetric functions of past information. We
compare the results for the Portuguese Stock Market Index PSI 20 with six other
Stock Market Indices, namely the S&P 500, FTSE100, DAX 30, CAC 40, ASE 20, and
IBEX 35. In order to assess asymmetric volatility we use autoregressive
conditional heteroskedasticity specifications known as TARCH and EGARCH. We
also test for asymmetry after controlling for the effect of macroeconomic
factors on stock market returns using TAR and M-TAR specifications within a VAR
framework. Our results show that the conditional variance is an asymmetric
function of past innovations raising proportionately more during market
declines, a phenomenon known as the leverage effect. However, when we control
for the effect of changes in macroeconomic variables, we find no significant
evidence of asymmetric behaviour of the stock market returns. There are some
signs that the Portuguese Stock Market tends to show somewhat less market
efficiency than other markets since the effect of the shocks appear to take a
longer time to dissipate.
