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

Listed author(s):
  • Willy Alanya

    ( Departamento de Economía - Pontificia Universidad Católica del Perú)

  • Gabriel Rodríguez

    ( Departamento de Economía - Pontificia Universidad Católica del Perú)

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

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File URL: http://files.pucp.edu.pe/departamento/economia/DDD392.pdf
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Paper provided by Departamento de Economía - Pontificia Universidad Católica del Perú in its series Documentos de Trabajo / Working Papers with number 2014-392.

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Length: 28 pages
Date of creation: 2014
Publication status: published
Handle: RePEc:pcp:pucwps:wp00392
Contact details of provider: Postal:
Av. Universitaria 1801, San Miguel, Lima, Perú

Phone: (511) 626-2000 ext. 4950, 4951
Fax: (511) 626-2874
Web page: http://departamento.pucp.edu.pe/economia/
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