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Asymmetric Multivariate Stochastic Volatility

  • Manabu Asai
  • Michael McAleer

This paper proposes and analyses two types of asymmetric multivariate stochastic volatility (SV) models, namely, (i) the SV with leverage (SV-L) model, which is based on the negative correlation between the innovations in the returns and volatility, and (ii) the SV with leverage and size effect (SV-LSE) model, which is based on the signs and magnitude of the returns. The paper derives the state space form for the logarithm of the squared returns, which follow the multivariate SV-L model, and develops estimation methods for the multivariate SV-L and SV-LSE models based on the Monte Carlo likelihood (MCL) approach. The empirical results show that the multivariate SV-LSE model fits the bivariate and trivariate returns of the S&P 500, the Nikkei 225, and the Hang Seng indexes with respect to AIC and BIC more accurately than does the multivariate SV-L model. Moreover, the empirical results suggest that the univariate models should be rejected in favor of their bivariate and trivariate counterparts.

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Article provided by Taylor & Francis Journals in its journal Econometric Reviews.

Volume (Year): 25 (2006)
Issue (Month): 2-3 ()
Pages: 453-473

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Handle: RePEc:taf:emetrv:v:25:y:2006:i:2-3:p:453-473
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