IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Multivariate stochastic volatility, leverage and news impact surfaces

  • Manabu Asai
  • Michael McAleer

Alternative multivariate stochastic  volatility (MSV)  models with leverage have been proposed in the literature. However, the existing MSV with leverage models are unclear about the definition of leverage, specifically the timing of the relationship between the innovations in financial returns and the associated shocks to volatility, as well as their connection to partial correlations. This paper proposes a new MSV with leverage (MSVL) model in which leverage is defined clearly in terms of the innovations in both financial returns and volatility, such that the leverage effect associated with one financial return is not related to the leverage effect of another. News impact surfaces are developed for MSV models with leverage based on both log-volatility and volatility and are compared with the special case of news impact functions for their univariate counterparts. In order to capture heavy tails in each return distribution, we incorporate an additional factor for the volatility of each return. An empirical example based on bivariate data for Standard and Poor's 500 Composite Index and the Nikkei 225 Index is presented to illustrate the usefulness of the new MSVL model and the associated news impact surfaces. Likelihood ratio (LR) tests are considered for model selection. The LR tests show that the two-factor MSVL model is supported, indicating that the restrictions considered in the paper are empirically adequate under heavy-tailed return distributions. Copyright © 2009 The Author(s). Journal compilation © Royal Economic Society 2009

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Royal Economic Society in its journal Econometrics Journal.

Volume (Year): 12 (2009)
Issue (Month): 2 (07)
Pages: 292-309

in new window

Handle: RePEc:ect:emjrnl:v:12:y:2009:i:2:p:292-309
Contact details of provider: Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
Phone: +44 1334 462479
Web page:

More information through EDIRC

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ect:emjrnl:v:12:y:2009:i:2:p:292-309. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.