Asymmetric Multivariate Stochastic Volatility

Manabu Asai and Michael McAleer

Econometric Reviews, 2006, vol. 25, issue 2-3, pages 453-473

Abstract: This paper proposes and analyses two types of asymmetric multivariate stochastic volatility (SV) models, namely, (i) the SV with leverage (SV-L) model, which is based on the negative correlation between the innovations in the returns and volatility, and (ii) the SV with leverage and size effect (SV-LSE) model, which is based on the signs and magnitude of the returns. The paper derives the state space form for the logarithm of the squared returns, which follow the multivariate SV-L model, and develops estimation methods for the multivariate SV-L and SV-LSE models based on the Monte Carlo likelihood (MCL) approach. The empirical results show that the multivariate SV-LSE model fits the bivariate and trivariate returns of the S&P 500, the Nikkei 225, and the Hang Seng indexes with respect to AIC and BIC more accurately than does the multivariate SV-L model. Moreover, the empirical results suggest that the univariate models should be rejected in favor of their bivariate and trivariate counterparts.

Keywords: Asymmetric leverage; Bayesian Markov chain Monte Carlo; Dynamic leverage; Importance sampling; Multivariate stochastic volatility; Numerical likelihood; Size effect (search for similar items in EconPapers)
Date: 2006
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