Testing for a Common Volatility Process and Information Spillovers in Bivariate Financial Time Series Models

Arbeitspapier

The paper considers the problem as to whether financial returns have a common volatility process in the framework of stochastic volatility models that were suggested by Harvey et al. (1994). We propose a stochastic volatility version of the ARCH test proposed by Engle and Susmel (1993), who investigated whether international equity markets have a common volatility process. The paper also checks the hypothesis of frictionless cross-market hedging, which implies perfectly correlated volatility changes, as suggested by Fleming et al. (1998). The paper uses the technique of Chesher (1984) in differentiating an integral that contains a degenerate density function in deriving the Lagrange Multiplier test statistic.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 16-015/III

Classification and Topics

• Classification: Wirtschaft ; Hypothesis Testing: General ; Financial Econometrics ; Financial Crises ; Portfolio Choice; Investment Decisions
• Subject: Volatility comovement ; Cross-market hedging ; Spillovers ; Contagion

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chen, Jinghui ; Kobayashi, Masahito ; McAleer, Michael
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/130502
• Last update: 10.03.2025, 11:44 AM CET