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Asymmetric stochastic volatility in emerging stock markets

Faruk Selcuk

Applied Financial Economics, 2005, vol. 15, issue 12, 867-874

Abstract: Daily stock market volatility in a sample of emerging market economies is investigated utilizing an asymmetric stochastic volatility (ASV) model which is estimated with Markov Chain Monte Carlo (MCMC) method. The results indicate that the ASV model captures the volatility dynamics in those stock markets successfully. Particularly, it is shown that volatility has a significant persistency and the variability of volatility is higher as compared to advanced economies. The paper also provides evidence for significant negative correlation between shocks to the stock market index and shocks to volatility, the so-called 'leverage effect'. Furthermore, the estimation results show that the persistency in volatility and the variability of volatility are negatively related: higher variability of volatility implies lower persistency in volatility series and vice versa. In addition, persistency in volatility and the magnitude of leverage effect are negatively correlated: high persistency is associated with relatively lower leverage effect.

Date: 2005
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DOI: 10.1080/09603100500077136

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