ABSTRACT
This chapter aims to apply news impact curve methodology to test the effects of derivatives introduction on stock price volatility of individual firms' equities. The majority of firms with an increase in price volatility present an "inverted leverage" effect. The chapter presents a brief survey of recent theories about speculation and asset-price variability and focuses on the role of information distribution among different market participants in determining price volatility. It describes the conditional volatility models used for the empirical analysis. For all firms the presence of conditional volatility is confirmed. In particularly: the log-likelihood is greater in conditional volatility models than in base equation; the excess kurtosis of normalised residuals is reduced for all firms except Eurotunnel and Hoechst, sign-size bias tests significance; the best models seem to be the asymmetric and centred Sign Switching Generalized Autoregressive Conditional Heteroskedasticity (GARCH) and sign and size conditional-GARCH.
