2017-02-01
Testing for Volatility Co-movement in Bivariate Stochastic Volatility Models
Publication
Publication
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.
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hdl.handle.net/1765/99788 | |
Discussion paper / Tinbergen Institute , Econometric Institute Research Papers | |
Organisation | Erasmus School of Economics |
Chen, J., Kobayashi, M., & McAleer, M. (2017). Testing for Volatility Co-movement in Bivariate Stochastic Volatility Models (No. EI2017-08). Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/99788 |