Testing for Volatility Co-movement in Bivariate Stochastic Volatility Models

Jinghui Chen, Masahito Kobayashi and Michael McAleer
Additional contact information
Jinghui Chen: Yokohama National University, Japan

No 17-022/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: The paper considers the problem of volatility co-movement, namely as to whether two nancial returns have perfectly correlated common volatility process, in the framework of multivariate stochastic volatility models and proposes a test which checks the volatility co-movement. The proposed test is a stochastic volatility version of the co-movement test proposed by Engle and Susmel (1993), who investigated whether international equity markets have volatility co-movement using the framework of the ARCH model. In empirical analysis we found that volatility co-movement exists among closelylinked stock markets and that volatility co-movement of the exchange rate markets tends to be found when the overall volatility level is low, which is contrasting to the often-cited nding in the nancial contagion literature that nancial returns have co-movement in the level during the nancial crisis.

Keywords: Lagrange multiplier test; Volatility co-movement, Stock markets, Exchange rate Markets, Financial crisis (search for similar items in EconPapers)
JEL-codes: C12 C58 G01 G11 (search for similar items in EconPapers)
Date: 2017-02-13
New Economics Papers: this item is included in nep-ets and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://papers.tinbergen.nl/17022.pdf (application/pdf)

Related works:
Working Paper: Testing for Volatility Co-movement in Bivariate Stochastic Volatility Models (2017)
Working Paper: Testing for volatility co-movement in bivariate stochastic volatility models (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20170022

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 (discussionpapers@tinbergen.nl).