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Structural Volatility Impulse Response Function and Asymptotic Inference

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  • Xiaochun Liu

Abstract

This paper traces contemporaneous effects of independent shocks on predicted future volatilities through time. The shocks are identified through time-varying heteroscedasticity. I obtain the explicit functions of volatility impulse responses for a structural system of simultaneity. The asymptotic distributions of the derived functions are also studied in analytical forms for statistical inference. The potential of this new framework is empirically illustrated in a structural system of the U.S. commodity and stock markets.

Suggested Citation

  • Xiaochun Liu, 2018. "Structural Volatility Impulse Response Function and Asymptotic Inference," Journal of Financial Econometrics, Oxford University Press, vol. 16(2), pages 316-339.
    • Handle: RePEc:oup:jfinec:v:16:y:2018:i:2:p:316-339.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbx029
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    3. Harrison, Andre & Liu, Xiaochun & Stewart, Shamar L., 2023. "Structural sources of oil market volatility and correlation dynamics," Energy Economics, Elsevier, vol. 121(C).

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    More about this item

    Keywords

    causality-in-volatility; commodity and stock market volatilities; contemporaneous effects; correlation structural break; structural dynamic conditional comovement;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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