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Bayesian Testing for Leverage Effect in Stochastic Volatility Models

Author

Listed:
  • Jin-Yu Zhang

    (Software Institute, Nanjing University)

  • Zhong-Tian Chen

    (Department of Economics, Duke University)

  • Yong Li

    (Renmin University of China)

Abstract

Stochastic volatility models have been widely appreciated to model the time-varying volatility in empirical finance. In practice, whether or not there is leverage effect in asset time series is one of important stylized facts. In this paper, in the context of the stochastic volatility models, the main purpose is to develop a Bayesian approach for testing the leverage effect. The performance of the developed procedure is illustrated by the simulation studies and two empirical examples.

Suggested Citation

  • Jin-Yu Zhang & Zhong-Tian Chen & Yong Li, 2019. "Bayesian Testing for Leverage Effect in Stochastic Volatility Models," Computational Economics, Springer;Society for Computational Economics, vol. 53(3), pages 1153-1164, March.
    • Handle: RePEc:kap:compec:v:53:y:2019:i:3:d:10.1007_s10614-017-9784-3
    DOI: 10.1007/s10614-017-9784-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Bayes factor; $$chi ^2$$ χ 2 test; Leverage effect; Markov chain Monte Carlo (MCMC); Stochastic volatility models;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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