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Bayesian Testing for Asset Volatility Persistence on Multivariate Stochastic Volatility Models

Author(s): Hao-Feng Xu | Fang-Ping Peng | Yong Li

Journal: Advances in Molecular Imaging
ISSN 2161-6728

Volume: 02;
Issue: 01;
Start page: 83;
Date: 2012;
Original page

Keywords: Asset Volatility Persistency | Bayes Factor | Decision Theory | Markov Chain Monte Carlo | Unit Root Testing | Multivariate Stochastic Volatility Models

In empirical finance, it is well-known that the volatility of asset returns is highly persistent. The persistence of the volatility process may be checked by testing for a unit root on stochastic volatility models. In this paper, a Bayesian test statistic based on decision theory is developed for testing a unit root on multivariate stochastic volatility models. At last, the developed approach is applied to investigate the persistent effect of financial crisis on the two main stock markets in China.
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