Regime-switching in volatility and correlation structure using range-based models with Markov-switching

Daniel Wei-Chung Miao, Chun-Chou Wu and Yi-Kai Su

Economic Modelling, 2013, vol. 31, issue C, 87-93

Abstract: This study examines latent shifts in the conditional volatility and correlation for the U.S. stock and T-bond data using the two-state Markov-switching range-based volatility and correlation models. This paper comes up with clear evidence of volatility regime-switching in stock indices and T-bond over the crisis period. As regards the process of correlation, we also find evidence of regime changes in correlations between stock indices and T-bond over several financial crises. We conclude that the phenomena of both volatility and correlation regime-switching are triggered by these financial crises. In addition, the range-based volatility and correlation model with regime-switching method could explicitly point out the true date of structure changes in the data generating process for volatility and correlation variables.

Keywords: Range-based model; Markov-switching method; Volatility; Correlation (search for similar items in EconPapers)
JEL-codes: C22 G01 G10 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:31:y:2013:i:c:p:87-93

DOI: 10.1016/j.econmod.2012.11.013

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