Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130502
Authors: 
Chen, Jinghui
Kobayashi, Masahito
McAleer, Michael
Year of Publication: 
2016
Series/Report no.: 
Tinbergen Institute Discussion Paper 16-015/III
Abstract: 
The paper considers the problem as to whether financial returns have a common volatility process in the framework of stochastic volatility models that were suggested by Harvey et al. (1994). We propose a stochastic volatility version of the ARCH test proposed by Engle and Susmel (1993), who investigated whether international equity markets have a common volatility process. The paper also checks the hypothesis of frictionless cross-market hedging, which implies perfectly correlated volatility changes, as suggested by Fleming et al. (1998). The paper uses the technique of Chesher (1984) in differentiating an integral that contains a degenerate density function in deriving the Lagrange Multiplier test statistic.
Subjects: 
Volatility comovement
Cross-market hedging
Spillovers
Contagion
JEL: 
C12
C58
G01
G11
Document Type: 
Working Paper

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