Testing for volatility co-movement in bivariate stochastic volatility models

• Masahito Kobayashi ^[1] ; Jinghui Chen ^[1] ; Michael McAleer ^[2]
  1. [1] Yokohama National University

     Yokohama National University

     Naka Ku, Japón

     
  2. [2] Erasmus University Rotterdam

     Erasmus University Rotterdam

     Países Bajos

     
• Localización: Documentos de Trabajo (ICAE), ISSN-e 2341-2356, Nº. 10, 2017, págs. 1-31
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • The paper considers the problem of volatility co-movement, namely as to whether two financial 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 finding in the financial contagion literature that financial returns have co-movement in the level during the financial crisis.