Template-Type: ReDIF-Paper 1.0
Author-Name: Chen, J.
Author-Name-Last: Chen
Author-Name-First: Jinghui
Author-Name: Kobayashi, M.
Author-Name-Last: Kobayashi
Author-Name-First: Masahito
Author-Name: McAleer, M.J.
Author-Name-Last: McAleer
Author-Name-First: Michael
Author-Person: pmc90
Title: Testing for a Common Volatility Process and Information Spillovers in Bivariate Financial Time Series Models
Abstract: The paper considers the problem as to whether financial returns have a common volatility process in the framework of stochastic volatility models that were suggested by Harvey et al. (1994). We propose a stochastic volatility version of the ARCH test proposed by Engle and Susmel (1993), who investigated whether international equity markets have a common volatility process. The paper also checks the hypothesis of frictionless cross-market hedging, which implies perfectly correlated volatility changes, as suggested by Fleming et al. (1998). The paper uses the technique of Chesher (1984) in differentiating an integral that contains a degenerate density function in deriving the Lagrange Multiplier test statistic.
Length: 35
Creation-Date: 2016-02-29
File-URL: https://repub.eur.nl/pub/79925/EI2016-16.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI2016-16
Classification-JEL: C12, C58, G01, G11
Keywords: Volatility comovement, Cross-market hedging, Spillovers, Contagion
Handle: RePEc:ems:eureir:79925