Next Article in Journal
Revisiting the Performance of MACD and RSI Oscillators
Previous Article in Journal
A Non-Parametric and Entropy Based Analysis of the Relationship between the VIX and S&P 500
J. Risk Financial Manag. 2013, 6(1), 31-61; doi:10.3390/jrfm6010031
Article

Testing for a Single-Factor Stochastic Volatility in Bivariate Series

1
 and
2,*
Received: 4 October 2013 / Revised: 25 November 2013 / Accepted: 12 December 2013 / Published: 19 December 2013
Download PDF [1917 KB, uploaded 19 December 2013]

Abstract

This paper proposes the Lagrange multiplier test for the null hypothesis thatthe bivariate time series has only a single common stochastic volatility factor and noidiosyncratic volatility factor. The test statistic is derived by representing the model in alinear state-space form under the assumption that the log of squared measurement error isnormally distributed. The empirical size and power of the test are examined in Monte Carloexperiments. We apply the test to the Asian stock market indices.
Keywords: stochastic volatility model; Kalman filter; Lagrange multiplier test stochastic volatility model; Kalman filter; Lagrange multiplier test
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Share & Cite This Article

Further Mendeley | CiteULike
Export to BibTeX |
EndNote
MDPI and ACS Style

Chiba, M.; Kobayashi, M. Testing for a Single-Factor Stochastic Volatility in Bivariate Series. J. Risk Financial Manag. 2013, 6, 31-61.

View more citation formats

Article Metrics

Comments

Citing Articles

[Return to top]
J. Risk Financial Manag. EISSN 1911-8074 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert