Inverse Leverage Effect for Cryptocurrencies and Meme Stocks : A Comprehensive Framework

Although the leverage effect, i.e. a negative correlation between the return and volatility, and the inverse leverage effect have been suggested for equities and commodities, respectively, the existing studies suffer from an identification problem because they only model one asset. By using a comprehensive multivariate model with jumps and heavy tail distribution for both an equity index and the asset, we find inverse leverage and volatility-varying leverage effects for cryptocurrencies and meme stocks. Network effects cannot explain this finding. To handle over 18,000 latent variables, a particle Gibbs with an ancestor sampling algorithm is extended to estimate parameters efficiently