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Stochastic Volatility in Peruvian Stock Market and Exchange Rate Returns: a Bayesian Approximation

Author

Listed:
  • Willy Alanya

    ( Departamento de Economía - Pontificia Universidad Católica del Perú)

  • Gabriel Rodríguez

    ( Departamento de Economía - Pontificia Universidad Católica del Perú)

Abstract

This study is one of the rst to utilize the SV model to model Peruvian financial series, as well as estimating and comparing with GARCH models with normal and t-student errors. The analysis in this study corresponds to Perus stock market and exchange rate returns. The importance of this methodology is that the adjustment of the data is better than the GARCH models using the assumptions of normality in both models. In the case of the SV model, three Bayesian algorithms have been employed where we evaluate their respective ine ciencies in the estimation of the models parameters being the most e¢ cient the Integration sampler. The estimated parameters in the SV model under the various algorithms are consistent, as they display little ine¢ ciency. The Figures of the correlations of the iterations suggest that there are no problems at the time of Markov chaining in all estimations. We nd that the volatilities in exchange rate and stock market volatilities follow similar patterns over time. That is, when economic turbulence caused by the economic circumstances occurs, for example, the Asian crisis and the recent crisis in the United States, considerable volatility was generated in both markets. JEL Classification-JEL: C22

Suggested Citation

  • Willy Alanya & Gabriel Rodríguez, 2014. " Stochastic Volatility in Peruvian Stock Market and Exchange Rate Returns: a Bayesian Approximation," Documentos de Trabajo / Working Papers 2014-392, Departamento de Economía - Pontificia Universidad Católica del Perú.
  • Handle: RePEc:pcp:pucwps:wp00392
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    File URL: http://files.pucp.edu.pe/departamento/economia/DDD392.pdf
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    Cited by:

    1. Gabriel Rodriguez & Willy Alanya, 2016. " Asymmetries in Volatility: An Empirical Study for the Peruvian Stock and Forex Market [Asimetrías en volatilidad: Un estudio empírico para los mercados bursátil y cambiario del Perú]," Documentos de Trabajo / Working Papers 2016-413, Departamento de Economía - Pontificia Universidad Católica del Perú.
    2. Patricia Lengua & Cristian Bayes & Gabriel Rodríguez, 2015. " A Stochastic Volatility Model with GH Skew Student’s t-Distribution: Application to Latin-American Stock Returns," Documentos de Trabajo / Working Papers 2015-405, Departamento de Economía - Pontificia Universidad Católica del Perú.

    More about this item

    Keywords

    Modelo de Volatilidad Estocástica; Estimación Bayesiana; Gibbs Sampler; Mixture Sampler; Integration Sampler; Mercado Bursátil; Mercado Cambiario; Modelos GARCH; Perú.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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