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Testing for a Single-Factor Stochastic Volatility in Bivariate Series

Author

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  • Masaru Chiba

    (Faculty of Engineering, Fukui University of Technology, 3-6-1 Gakuen, Fukui 910-8505, Japan)

  • Masahito Kobayashi

    (Faculty of Economics, Yokohama National University, 79-4 Tokiwadai, Yokohama 240-8501, Japan)

Abstract

This paper proposes the Lagrange multiplier test for the null hypothesis thatthe bivariate time series has only a single common stochastic volatility factor and noidiosyncratic volatility factor. The test statistic is derived by representing the model in alinear state-space form under the assumption that the log of squared measurement error isnormally distributed. The empirical size and power of the test are examined in Monte Carloexperiments. We apply the test to the Asian stock market indices.

Suggested Citation

  • Masaru Chiba & Masahito Kobayashi, 2013. "Testing for a Single-Factor Stochastic Volatility in Bivariate Series," JRFM, MDPI, vol. 6(1), pages 1-31, December.
    • Handle: RePEc:gam:jjrfmx:v:6:y:2013:i:1:p:31-61:d:31492
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    References listed on IDEAS

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    Cited by:

    1. Jinghui Chen & Masahito Kobayashi & Michael McAleer, 2017. "Testing for volatility co-movement in bivariate stochastic volatility models," Documentos de Trabajo del ICAE 2017-10, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

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