Stochastic Volatility in Mean: Empirical Evidence from Stock Latin American Markets

Carlos A. Abanto-Valle, Gabriel Rodríguez and Hernán B. Garrafa-Aragón
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Carlos A. Abanto-Valle: Federal University of Rio de Janeiro
Hernán B. Garrafa-Aragón: Universidad Nacional de Ingeniería

No 2020-481, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: Using a Stochastic Volatility in Mean (SVM) model, we perform an empirical study of five Latin American indexes in order to see the impact of the volatility in the mean of the returns. We use MCMC Hamiltonian dynamics. The results indicate that volatility has a negative impact on returns suggesting that the volatility feedback effect is stronger than the effect related to the expected volatility. This result is clear and opposite to the finding of Koopman and Uspensky (2002). The other countries present negative values but the upper tail of the intervals are near to the zero value.

Pages: 37
Date: 2020
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