News Impact Curve for Stochastic Volatility Models

Makoto Takahashi, Yasuhiro Omori () and Toshiaki Watanabe

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper proposes a new method to compute the news impact curve for stochastic volatility (SV) models. The new method incorporates the joint movement of return and volatility, which has been ignored by the extant literature, by simply adding a couple of steps to the Bayesian MCMC estimation procedures for SV models. This simple procedure is versatile and applicable to various SV type models. Contrary to the monotonic news impact functions in the extant literature, the new method gives a U-shaped news impact curve comparable to GARCH models. It also captures the volatility asymmetry for the asymmetric SV models.

Date: 2012-09
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Journal Article: News impact curve for stochastic volatility models (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hst:ghsdps:gd12-242

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