If you mean impact of change in leverage on price or return and there is no impact, then this is a sign of pricing inefficiency. Analysts must be informed.

Dear Shivakiran

Leverage effect  is generally referred to the negative correlation between past unexpected return shocks and future volatility. Do you mean that this correlation is absent or positive. Have you tested this? I did not see any research paper suggesting this. In fact, a paper by Long et al (2014, Economic Modelling) suggest the contrary.

However, the term leverage effect itself is misleading (this term is due to Black(1976));  the exact reason for this negative correlation are still debatable ( see, this paper http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1762363). The negative correlations are mainly observed in equity market. In commodities the correlations are positive, referred as  "inverse leverage effect". In currency markets mixed result are obtained. So if you really observe a positive return- volatility relation; you can investigate this along these lines.

 Badhani Sir,

At the outset let me thank you for the detailed answer to my question. I was doing the comparative study of volatility aspect in five stock market indices.  W e all know the asymmetric GARCH models (TGARCH and EGARCH) give the negative or positive shock impact on the volatility of the returns. I have used the same and found that except for China(SSE composite Index), for other countries series the asymmetric term is significant. Most of the papers i referred for the literature has explained the case where the asymmetric term is insignificant results in absence of leverage effect in the market. In light of this, i want to know what could be the reason for Chinese markets to experience this insignificant asymmetric term?

Thank you Sir, 

I repeated your calculations using alternative specifications(EGARCH anf GJR with normal and students t distribution for resid). It appears the leverage effect in SSE composite Index is rather weak. I think, you should explore this issue further focusing on different possible reasons for so-called leverage effect and  micro-structure / fundamentals of China's stock market.

Thank you Sir for the immediate response. 

I was actually looking into this absence of leverage effect in Chinese Markets and the possible reasons. Unfortunately, i could not get any paper mentioning this aspect of volatility. Now, as you mentioned the Micro-structure of chinese markets i will look for the literature in these lines.

All the very best Sivakiran.Its really inspiring to read your query and the answers which are given by experts.I highly recommend you to go further with this particular research

My answer will surprise you: due to the high level of trust in China which reduces the spread of asymmetric information.

I included an excellent study on trust in China Mainland, Hong Kong and Taiwan.

So at the end the missing leverage effect is a measurable result of the Chinese social capital.

Hi Sivakiran. Do you find reason for absence of leverage effect? I also found that in Serbian stock market there is not leverage effect. In my opinion a lot of frontier markets no leverage effect because they have fast growth of stock prices, and it causes much volatility of returns. When we have negative returns, the volatility is lower. But if you chose different sample of return series (for example the periods when no suddenly drops in stock prices), you can got leverage effect. And still one possible reason is that the market is inefficient.

https://www.researchgate.net/publication/301578726_Stock_Market_and_Macroeconomic_Behavior_Evidence_from_Karachi_Stock_Exchange_KSE

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