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Testing volatility persistence on Markov switching stochastic volatility models

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  • Pan, Qi
  • Li, Yong

Abstract

In the literature, some researchers found that the high persistence of the volatility can be caused by Markov regime switching. This concern can be reflected as a unit root problem on the basis of Markov switching models. In this paper, our main purpose is to provide a Bayesian unit root testing approach for Markov switching stochastic volatility (MSSV) models. We illustrate the developed approach using S&P 500 daily return covering the subprime crisis started in 2008.

Suggested Citation

  • Pan, Qi & Li, Yong, 2013. "Testing volatility persistence on Markov switching stochastic volatility models," Economic Modelling, Elsevier, vol. 35(C), pages 45-50.
  • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:45-50
    DOI: 10.1016/j.econmod.2013.06.029
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    References listed on IDEAS

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    Cited by:

    1. Hsu, Yuan-Lin & Lin, Shih-Kuei & Hung, Ming-Chin & Huang, Tzu-Hui, 2016. "Empirical analysis of stock indices under a regime-switching model with dependent jump size risks," Economic Modelling, Elsevier, vol. 54(C), pages 260-275.
    2. Chikashi Tsuji, 2016. "Did the expectations channel work? Evidence from quantitative easing in Japan, 2001–06," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1210996-121, December.
    3. Chikashi Tsuji, 2014. "Did the Stock Market Regime Change after the Inauguration of the New Cabinet in Japan?," Business and Management Horizons, Macrothink Institute, vol. 2(1), pages 98-108, June.
    4. 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; Markov switching; Persistence; Stochastic volatility; Unit root;
    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
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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