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A Stochastic Volatility Model with GH Skew Student’s t-Distribution: Application to Latin-American Stock Returns

Author

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  • Patricia Lengua

    ( Departamento de Economía de la Pontificia Universidad Católica del Perú)

  • Cristian Bayes

    (Pontificia Universidad Católica del Perú)

  • Gabriel Rodríguez

    ( Departamento de Economía de la Pontificia Universidad Católica del Perú)

Abstract

This paper presents an empirical study of a stochastic volatility (SV) model for daily stocks returns data of a set of Latin-American countries (Argentina, Brazil, Chile, Mexico and Peru) for the sample period 1996:01-2013:12. We estimate SV models incorporating both leverage e§ects and skewed heavy-tailed disturbances taking into account the GH Skew Studentís t-distribution using the Bayesian estimation method proposed by Nakajima and Omori (2012). A model comparison between the competing SV models with symmetric Studentís t-disturbances is provided using the log marginal likelihoods and a prior sensitivity analysis is also provided. The results suggest that there are leverage e§ects in all returns considered but there is not enough evidence for the case of Peru. Furthermore, skewed heavy-tailed disturbances are conÖrmed only for Argentina, symmetric heavy-tailed disturbances for Mexico, Brazil and Chile, and symmetric Normal disturbances for Peru. Furthermore, we Önd that the GH Skew Studentís t-disturbance distribution in the SV model is successful in describing the distribution of the daily stock return data for Peru, Argentina and Brazil over the traditional symmetric Studentís t-disturbance distribution. JEL Classification-JEL: C11, C58 Keywords: Stochastic Volatility, Generalized Hyperbolic Skew Studentís t-Distribution, Bayesian Estimation, Markov Chain Monte Carlo, Stock Returns, Latin American Stock

Suggested Citation

  • 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.
  • Handle: RePEc:pcp:pucwps:wp00405
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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. Lengua Lafosse, Patricia & Rodríguez, Gabriel, 2018. "An empirical application of a stochastic volatility model with GH skew Student's t-distribution to the volatility of Latin-American stock returns," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 155-173.

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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