Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162288
Authors: 
Chen, Jinghui
Kobayashi, Masahito
McAleer, Michael
Year of Publication: 
2017
Series/Report no.: 
Tinbergen Institute Discussion Paper 17-022/III
Abstract: 
The paper considers the problem of volatility co-movement, namely as to whether two nancial returns have perfectly correlated common volatility process, in the framework of multivariate stochastic volatility models and proposes a test which checks the volatility co-movement. The proposed test is a stochastic volatility version of the co-movement test proposed by Engle and Susmel (1993), who investigated whether international equity markets have volatility co-movement using the framework of the ARCH model. In empirical analysis we found that volatility co-movement exists among closelylinked stock markets and that volatility co-movement of the exchange rate markets tends to be found when the overall volatility level is low, which is contrasting to the often-cited nding in the nancial contagion literature that nancial returns have co-movement in the level during the nancial crisis.
Subjects: 
Lagrange multiplier test
Volatility co-movement
Stock markets
Exchange rate Markets
Financial crisis
JEL: 
C12
C58
G01
G11
Document Type: 
Working Paper

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