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Testing for a unit root in the presence of stochastic volatility and leverage effect

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  • Li, Yong
  • Chong, Terence Tai-Leung
  • Zhang, Jie

Abstract

Previous studies have shown that the stationary and nonstationary time-varying volatilities have different implications on the unit root test. In this paper, we provide a Bayesian unit root test for an AR(1) model with stochastic volatility and leverage effect. Monte Carlo simulations show that the proposed Bayesian unit root test statistic achieves good finite sample properties and is robust to the stationarity of stochastic volatility.

Suggested Citation

  • Li, Yong & Chong, Terence Tai-Leung & Zhang, Jie, 2012. "Testing for a unit root in the presence of stochastic volatility and leverage effect," Economic Modelling, Elsevier, vol. 29(5), pages 2035-2038.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:2035-2038
    DOI: 10.1016/j.econmod.2012.04.007
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    References listed on IDEAS

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    1. Phillips, P C B, 1991. "Bayesian Routes and Unit Roots: De Rebus Prioribus Semper Est Disputandum," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(4), pages 435-473, Oct.-Dec..
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    6. So, Mike K P & Li, W K, 1999. "Bayesian Unit-Root Testing in Stochastic Volatility Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 491-496, October.
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    8. Renate Meyer & Jun Yu, 2000. "BUGS for a Bayesian analysis of stochastic volatility models," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 198-215.
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    Citations

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    Cited by:

    1. Magris Martin & Iosifidis Alexandros, 2021. "Approximate Bayes factors for unit root testing," Papers 2102.10048, arXiv.org, revised Feb 2021.
    2. Pan, Qi & Li, Yong, 2013. "Testing volatility persistence on Markov switching stochastic volatility models," Economic Modelling, Elsevier, vol. 35(C), pages 45-50.
    3. A. B. M. Rabiul Alam Beg & Sajid Anwar, 2014. "Detecting volatility persistence in GARCH models in the presence of the leverage effect," Quantitative Finance, Taylor & Francis Journals, vol. 14(12), pages 2205-2213, December.
    4. Wang, Nianling & Lou, Zhusheng, 2023. "Sequential Bayesian analysis for semiparametric stochastic volatility model with applications," Economic Modelling, Elsevier, vol. 123(C).
    5. Xiao-Bin Liu & Yong Li, 2013. "Bayesian testing volatility persistence in stochastic volatility models with jumps," Quantitative Finance, Taylor & Francis Journals, vol. 14(8), pages 1415-1426, December.

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    More about this item

    Keywords

    Bayes factor; Leverage effect; Unit root; Stationarity; Stochastic volatility;
    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

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