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Chen, Jinghui and Kobayashi, Masahito and McAleer, Michael (2017) Testing for volatility co-movement in bivariate stochastic volatility models. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 10, 2017, ISSN: 2341-2356 ] (Unpublished)
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Abstract
The paper considers the problem of volatility co-movement, namely as to whether two financial returns have perfectly correlated common volatility process, in the framework of multivariate stochastic volatility models and proposes a test which checks the volatility co-movement. The proposed test is a stochastic volatility version of the co-movement test proposed by Engle and Susmel (1993), who investigated whether international equity markets have volatility co-movement using the framework of the ARCH model.
In empirical analysis we found that volatility co-movement exists among closelylinked stock markets and that volatility co-movement of the exchange rate markets tends to be found when the overall volatility level is low, which is contrasting to the often-cited finding in the financial contagion literature that financial returns have co-movement in the level during the financial crisis.
Item Type: | Working Paper or Technical Report |
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Uncontrolled Keywords: | Lagrange multiplier test; Volatility co-movement; Stock markets; Exchange rate Markets; Financial crisis |
Subjects: | Sciences > Mathematics > Finance Social sciences > Economics > Depressions Social sciences > Economics > Econometrics |
JEL: | C12, C58, G01, G11 |
Series Name: | Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE) |
Volume: | 2017 |
Number: | 10 |
ID Code: | 41441 |
Deposited On: | 21 Feb 2017 09:06 |
Last Modified: | 13 Mar 2017 10:51 |
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