Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2017-02-13
Number: 17-022/III
Author-Name: Jinghui Chen
Author-Workplace-Name: Yokohama National University, Japan
Author-Name: Masahito Kobayashi
Author-Email: kobayashi-masahito-nz@ynu.ac.jp
Author-Workplace-Name: Yokohama National University, Japan
Author-Name: Michael McAleer
Author-Email: michael.mcaleer@gmail.com
Author-Workplace-Name: National Tsing Hua University, Taiwan; Erasmus University Rotterdam, The Netherlands;Complutense University of Madrid, Spain; Yokohama National University, Japan
Title: Testing for Volatility Co-movement in Bivariate Stochastic Volatility Models
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.
Classification-JEL: C12, C58, G01, G11
Keywords: Lagrange multiplier test; Volatility co-movement, Stock markets, Exchange rate Markets, Financial crisis
File-Url: https://papers.tinbergen.nl/17022.pdf
File-Format: application/pdf
File-Size: 452281 bytes
Handle: RePEc:tin:wpaper:20170022