Bayesian Testing for Leverage Effect in Stochastic Volatility Models

Jin-Yu Zhang, Zhong-Tian Chen and Yong Li ()
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Jin-Yu Zhang: Software Institute, Nanjing University
Zhong-Tian Chen: Department of Economics, Duke University
Yong Li: Renmin University of China

Computational Economics, 2019, vol. 53, issue 3, No 12, 1153-1164

Abstract: Abstract Stochastic volatility models have been widely appreciated to model the time-varying volatility in empirical finance. In practice, whether or not there is leverage effect in asset time series is one of important stylized facts. In this paper, in the context of the stochastic volatility models, the main purpose is to develop a Bayesian approach for testing the leverage effect. The performance of the developed procedure is illustrated by the simulation studies and two empirical examples.

Keywords: Bayes factor; $$\chi ^2$$ χ 2 test; Leverage effect; Markov chain Monte Carlo (MCMC); Stochastic volatility models (search for similar items in EconPapers)
JEL-codes: C11 C12 G12 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10614-017-9784-3

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