Empirical analysis of stock indices under a regime-switching model with dependent jump size risks

Yuan-Lin Hsu, Shih-Kuei Lin, Ming-Chin Hung and Tzu-Hui Huang

Economic Modelling, 2016, vol. 54, issue C, 260-275

Abstract: In this study, we propose a regime-switching model with dependent jump size risks to capture important characteristics of cyclical movements and abnormal shock events. We further demonstrate that the two-state model provides asymmetric and leptokurtic return features, and volatility clustering is observed empirically using 12years of daily data for the S&P 500, Dow Jones Industrial Average (DJIA), and Nikkei 225 indices. In addition, our results indicate that the regime-switching model with dependent jump size risks is superior to the competing models.

Keywords: Markov regime-switching model; Volatility clustering; Jump risks; Stock index (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:54:y:2016:i:c:p:260-275

DOI: 10.1016/j.econmod.2015.11.016

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