Zhang, Zehua and Zhao, Ran ORCID: 0000-0001-8502-0024
(2022)
Improving the asymmetric stochastic volatility model with ex-post volatility: the identification of the asymmetry.
QUANTITATIVE FINANCE, 23 (1).
pp. 35-51.
Abstract
Simulation studies show that the asymmetry stochastic volatility (ASV) models may infer erroneous correlation coefficients, due to their predetermined return-volatility specification. We propose identifying the correlation parameter by incorporating the ex-post volatility in the ASV framework. We obtain a significantly smaller magnitude in the estimated correlation coefficients between equity and volatility processes among major U.S. equity market indexes. Out-of-sample index return distribution forecasts demonstrate superior performance when jointly estimating the return and the ex-post volatility processes. The corrected return-volatility correlations by estimating proposed ASV models with subsample data further document the time-varying leverage effect.
Item Type: | Article |
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Uncontrolled Keywords: | Asymmetric stochastic volatility, Bayesian MCMC, Density forecasting, Leverage effect, Realized volatility measures, Time-varying asymmetry |
Divisions: | Faculty of Humanities and Social Sciences > School of Management |
Depositing User: | Symplectic Admin |
Date Deposited: | 16 Feb 2023 11:40 |
Last Modified: | 16 Feb 2023 11:40 |
DOI: | 10.1080/14697688.2022.2140700 |
Open Access URL: | https://doi.org/10.1080/14697688.2022.2140700 |
Related URLs: | |
URI: | https://livrepository.liverpool.ac.uk/id/eprint/3168435 |