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Stochastic Volatility in Mean: Empirical evidence from Latin-American stock markets using Hamiltonian Monte Carlo and Riemann Manifold HMC methods

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  • Abanto-Valle, Carlos A.
  • Rodríguez, Gabriel
  • Garrafa-Aragón, Hernán B.

Abstract

The Stochastic Volatility in Mean (SVM) model of Koopman and Uspensky (2002) is revisited. An empirical study of five Latin American indexes in order to see the impact of the volatility in the mean of the returns is performed. Markov Chain Monte Carlo (MCMC) Hamiltonian dynamics is used to estimate latent volatilities and parameters. Our findings show that volatility has a negative impact on returns, indicating that 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).

Suggested Citation

  • Abanto-Valle, Carlos A. & Rodríguez, Gabriel & Garrafa-Aragón, Hernán B., 2021. "Stochastic Volatility in Mean: Empirical evidence from Latin-American stock markets using Hamiltonian Monte Carlo and Riemann Manifold HMC methods," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 272-286.
    • Handle: RePEc:eee:quaeco:v:80:y:2021:i:c:p:272-286
    DOI: 10.1016/j.qref.2021.02.005
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    Cited by:

    1. Carlos A. Abanto-Valle & Gabriel Rodríguez & Luis M. Castro Cepero & Hernán B. Garrafa-Aragón, 2024. "Approximate Bayesian Estimation of Stochastic Volatility in Mean Models Using Hidden Markov Models: Empirical Evidence from Emerging and Developed Markets," Computational Economics, Springer;Society for Computational Economics, vol. 64(3), pages 1775-1801, September.
    2. Manner, Hans & Rodríguez, Gabriel & Stöckler, Florian, 2024. "A changepoint analysis of exchange rate and commodity price risks for Latin American stock markets," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1385-1403.

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    More about this item

    Keywords

    Feed-back effect; Hamiltonian Monte Carlo; Markov Chain Monte Carlo; Non linear state space models; Riemannian Manifold Hamiltonian Monte Carlo; Stochastic Volatility in Mean; Stock Latin American markets;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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