A threshold factor multivariate stochastic volatility model

Mike K. P. So and C. Y. Choi
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Mike K. P. So: Hong Kong University of Science and Technology, Hong Kong, Postal: Hong Kong University of Science and Technology, Hong Kong
C. Y. Choi: Hong Kong University of Science and Technology, Hong Kong, Postal: Hong Kong University of Science and Technology, Hong Kong

Journal of Forecasting, 2009, vol. 28, issue 8, 712-735

Abstract: A new multivariate stochastic volatility model is developed in this paper. The main feature of this model is to allow threshold asymmetry in a factor covariance structure. The new model provides a parsimonious characterization of volatility and correlation asymmetry in response to market news. Statistical inferences are drawn from Markov chain Monte Carlo methods. We introduce news impact analysis to analyze volatility asymmetry with a factor structure. This analysis helps us to study different responses of volatility to historical market information in a multivariate volatility framework. Our model is successful when applied to an extensive empirical study of twenty stocks. Copyright © 2009 John Wiley & Sons, Ltd.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:jof:jforec:v:28:y:2009:i:8:p:712-735

DOI: 10.1002/for.1123

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