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MCMC Methods for Estimating Stochastic Volatility Models with Liverage Effects: Comments on Jacquier, Polson and Rossi (2002)

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  • Yu, Jun

Abstract

In this note we represent the well known discrete time stochastic volatility (SV) model with a leverage effect and the SV model of Jacquier, Polson and Rossi (JPR) (2002) using Gaussian nonlinear state space forms with uncorrelated measurement and transition errors. With the new representations, we show that the JPR specification does not necessarily lead to a leverage effect and hence is not theoretically justified. Empirical comparisons of these two models via Bayesian MCMC methods reveal that JPR's specification is not supported by actual data either. Simulation experiments are conducted to study the sampling properties of the Bayes estimator for the conventionally specified model.

Suggested Citation

  • Yu, Jun, 2002. "MCMC Methods for Estimating Stochastic Volatility Models with Liverage Effects: Comments on Jacquier, Polson and Rossi (2002)," Working Papers 138, Department of Economics, The University of Auckland.
    • Handle: RePEc:auc:wpaper:138
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    File URL: http://hdl.handle.net/2292/138
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    Cited by:

    1. Carmen Broto & Esther Ruiz, 2004. "Estimation methods for stochastic volatility models: a survey," Journal of Economic Surveys, Wiley Blackwell, vol. 18(5), pages 613-649, December.
    2. Selçuk, Faruk, 2004. "Free float and stochastic volatility: the experience of a small open economy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 342(3), pages 693-700.
    3. Garland Durham, 2004. "Likelihood-based estimation and specification analysis of one- and two-factor SV models with leverage effects," Econometric Society 2004 North American Summer Meetings 294, Econometric Society.
    4. Hashem Zarafat & Sascha Liebhardt & Mustafa Hakan Eratalay, 2022. "Do ESG Ratings Reduce the Asymmetry Behavior in Volatility?," JRFM, MDPI, vol. 15(8), pages 1-32, July.
    5. Antonis Demos, 2023. "Estimation of Asymmetric Stochastic Volatility in Mean Models," DEOS Working Papers 2309, Athens University of Economics and Business.
    6. Hisashi Tanizaki & Shigeyuki Hamori, 2009. "Volatility transmission between Japan, UK and USA in daily stock returns," Empirical Economics, Springer, vol. 36(1), pages 27-54, February.
    7. Yanhui Xi & Hui Peng & Yemei Qin, 2016. "Modeling Financial Time Series Based on a Market Microstructure Model with Leverage Effect," Discrete Dynamics in Nature and Society, Hindawi, vol. 2016, pages 1-15, February.
    8. Antonis Demos, 2023. "Statistical Properties of Two Asymmetric Stochastic Volatility in Mean Models," DEOS Working Papers 2303, Athens University of Economics and Business.

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    Keywords

    Bayesian estimation; Economics;

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