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 Volatility Co-movement in Bivariate Stochastic Volatility Models
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.
Length: 30
Creation-Date: 2017-02-01
File-URL: https://repub.eur.nl/pub/99788/EI2017-08-Report.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: TI 2017-022/III
Number: EI2017-08
Classification-JEL: C12, C58, G01, G11
Keywords: Lagrange multiplier test, Volatility co-movement, Stock markets, Exchange rate Markets, Financial crisis
Handle: RePEc:ems:eureir:99788